Domestic CIS, how much gold can be found in the automobile market?

Domestic CIS is shifting the battlefield from smartphones to the automotive field.

Mobile phones and security, insufficient momentum

As the largest usage scenario of CIS, the ups and downs of the smartphone market are related to the success of the CIS market. According to research by Trendforce Consulting, starting from the third quarter of 2021 and ending in 2022, global smartphone production has declined year-on-year for six consecutive quarters. Trendforce predicts that smartphone inventory will not return to healthy levels until the second quarter of this year. And due to interference from factors such as inflationary pressure and geopolitics, the increase in smartphone production throughout 2023 will probably remain between 1 and 3%.

In the field of security, security leader Hikvision's revenue in 2022 will be 83.174 billion yuan, a year-on-year increase of 2.15%. The revenue of Dahua Co., Ltd. in the first three quarters of 2022 can also provide a glimpse of the basic situation for the whole year. Dahua Co., Ltd. achieved revenue of 21.172 billion yuan in the first three quarters of 2022, a year-on-year decrease of 1.46%. Overall, the growth of the security market will stagnate in 2022, and the demand for CIS will also slow down.

The two major markets of security and smartphones have limited growth and even experienced negative growth in the past. Industrial demand is relatively stable. The automotive market has become the main growth driver of CIS and the focus of competition for CIS companies. But the automotive market is also changing.

The car market has changed

From the perspective of application, CIS is mainly used in cars with ADAS functions, and more broadly, it is mainly used in new energy vehicles. Therefore, the growth and decline of new energy vehicle shipments can be roughly regarded as a barometer of automotive CIS. Typical applications of automotive CIS include front-view, side-view, rear-view, surround-view camera systems, driver monitoring systems and occupant monitoring systems, electronic rearview mirrors, etc. It can be divided into two categories: imaging and perception. The imaging category is mainly to provide auxiliary reference for drivers. It must have full color night vision and low power consumption. The perception category needs to effectively identify traffic signals, especially LED traffic lights and signs. and other dynamically refreshed content, with excellent HDR performance and full-color night vision capabilities.

From the perspective of bicycle usage, as smart driving upgrades from L1 to L2/L3, the number of cameras has increased from about 5 at the beginning to 8 to 15, and the number of on-board cameras has increased significantly. For example, Tesla's Model Y and Model 3, BYD's Han and Tang series, and NIO's ES5, ES6, and EC6 all use 8 cameras. But the transition from 5 to 8 and then to 15 is a long-term process. In the short term, the sales volume of new energy vehicles will affect the demand for automotive CIS.

2020 is the year of the explosion of new energy vehicles, and 2021 and 2022 are the rapid growth stages of new energy vehicles. According to data from the China Association of Automobile Manufacturers, China's new energy vehicle sales in 2022 will be 6.887 million units. A year-on-year increase of 93.4%. Looking to 2023, although new energy vehicles will continue to grow, their growth rate will most likely slow down compared to two years ago.

There are three reasons. First, starting from this year, the country will cancel the purchase subsidies for new energy vehicles that have been implemented for many years, and consumers’ enthusiasm for car purchases will weaken. Second, under the influence of the global economic downturn and inflation, consumers will not give priority to buying cars. The third point is that after more than two years of rapid growth, new energy vehicles have developed into a mature stage. This is determined by the characteristics of the industry. In the future, the growth model of new energy vehicles will move from high speed to steady.

The China Association of Automobile Manufacturers recently predicted that China's new energy vehicle sales will fall to around 9 million units in 2023, which is approximately an increase of more than 2.1 million units from last year, and the growth rate is slowing down.

Market structure of automotive CIS

In the current automotive CIS market, the main players are On Semi, Sony, OmniVision and Smartway. Among them, On Semi is the current leader in the field of automotive CIS. It acquired Cypress's CMOS image sensor business unit in 2011 , then acquired image sensor equipment manufacturer Truesense Imaging in April 2014, and acquired Aptina Imaging in August of the same year. The company is the world's first manufacturer of automotive CIS.

Through three acquisitions, On Semi has gained a first-mover advantage in the automotive CIS field. After about ten years of development, it has accumulated rich customer resources and occupied a considerable market share in the mid-to-low-end market.

The high-end market is occupied by Sony. Sony has only entered the field of automotive CIS in 2015. However, it has strong technical strength and has a considerable market share in the high-end market. Its customers are mainly Japanese car companies.

Taken together, judging from the current market structure, Sony occupies the high-end market. This part of the market is relatively small but has considerable profit margins. In the mid-to-low-end market, On Semi has occupied the vast majority of the market with its first-mover advantage, and has subsequently become the leader in the entire automotive CIS field. But this situation is currently changing, and Chinese companies are launching a fierce attack on the automotive CIS market.

Domestic automotive CIS outbreak

At present, the three major image sensor companies in China are Howey, Smartway, and Gekewei. Both Haowei and Smartway have entered the car-level CIS market to make a fortune.

Driven by the rapid growth of new energy vehicles, OmniVision and Smartway have accelerated the progress of car-grade CIS in the past year.

In 2022, Haowei launched three products: OX03D, OX05B1S, and OX3J10. In January this year, it launched the OX01E20 system-level chip . Compared with Haowei, Smartway has made faster progress. In 2022 alone, it launched 6 car-grade CIS, including SC850AT and SC200AT for perception, and SC320AT and SC220AT for imaging. In January this year, SC233AT was launched for in-cabin applications. The intensive product releases have made the automotive CIS market even more intense.

In terms of shipments to the end market, the domestic automotive grade CIS industry chain has also been developing rapidly in the past year. From Smartway's perspective, it has completed the launch of multiple products in just over two years, and some of its products have already entered the supply chain of China's leading new energy vehicles. Judging from the revenue contributed by automobiles, in the first half of 2022, automotive electronics contributed revenue of 65.99 million yuan, a year-on-year increase of 15.2%, and its proportion of revenue increased to 6.5%. From the perspective of Howey, it has accelerated its market share in the past year. From the financial report, in the first half of 2022, Howey's revenue from the automotive CIS market accounted for 22%, amounting to 1.606 billion yuan.

From the perspective of the industrial chain, domestic CIS companies currently cooperate more closely with upstream and downstream companies. As the leader in the CIS packaging and testing industry, Jingfang Technology completed the construction of an automotive-grade CIS packaging and testing production line last year, and has cooperated with OmniVision to provide customers with automotive CIS, which was shipped in batches last year. In terms of foundry, Jinghe Integration has launched automotive-grade chip foundry business and signed an in-depth strategic cooperation agreement with Smartway. Jinghe Integration previously expected that the company's automotive chips could reach 5,000 pieces per month by the end of 2022.

competition intensifies

The best time to plant trees was ten years ago, followed by now. The best time for CIS companies to deploy in the automobile market was ten years ago, followed by last year, and now. After two or three years of development, the supply chain and market structure of automotive CIS has begun to take shape.

Howe and On Semi were planted more than ten years ago, so they are currently able to occupy a certain position in the automotive market. Smartway was planted four or five years ago, just in time to catch up with the explosion of new energy vehicles, and has risen rapidly. . For other CIS companies, if they enter now or in the future, they have missed the golden window period and it may be more difficult to enter.

The reason is that the rapid development of new energy vehicles is coming to an end. This wave of production capacity shortage has passed. With the terminal growth slowing down, the competition in the automotive CIS market will become more intense, especially in the mid-to-low-end market. Currently, Haowei and Smartway is already encroaching on On Semi's market share. For such a highly competitive market, those who have already entered the market have first-mover advantages, which will block companies that want to enter from the perspective of technology, cost and brand influence.

In addition, entering the field of automotive CIS requires passing vehicle regulatory certification. At present, terminal car manufacturers generally need to obtain three automotive certifications: IATF16949, AEC-Q100 and ISO 26262. Among them, IATF16949 is the system threshold, the standard specification of the automotive quality management system, and the passport for the automotive supply chain; AEC-Q100 and The AEC Q series is mainly a specification for the reliability assessment of vehicle-standard electronic components and is the "basic threshold" for front-loading on the vehicle, while ISO 26262 is an assessment specification for the functional safety of electronic and electrical systems.