Automotive chips can no longer drive the market

In June 2024, Semiconductor Intelligence (SI) released its analysis of the 2023 automotive semiconductor market and its outlook for 2024 and beyond.

SI predicts that the automotive semiconductor market revenue will increase by 12% year-on-year to $67 billion in 2023. In terms of company sales ranking, Infineon Technologies (hereinafter referred to as "Infineon") ranks first with sales of $9.2 billion, accounting for 13.7% of the market. NXP Semiconductors ( NXP ) and STMicroelectronics (STMicroelectronics) account for 11.2% and 10.6% of the market share respectively. SI announced the ranking of the top 12 companies, with Japan's Renesas Electronics ranking fifth with $4.7 billion in revenue and ROHM ranking tenth with $1.6 billion in revenue.

01. Major suppliers’ performance is shrouded in dark clouds

The automotive semiconductor industry has recovered from supply shortages during the pandemic and has continued to grow strongly since 2021. However, the market is now showing signs of slowing down.

The sales of the first three companies mentioned above also reflect this trend. Infineon reported strong growth in 2022 and early 2023, but has been on a downward trend since peaking in the second quarter of 2023. NXP continued to achieve quarterly revenue growth in the fourth quarter of 2023, but fell 5% quarter-on-quarter in the first quarter of 2024. NXP pointed out in its first quarter 2024 financial report that the automotive market was generally weak in the first half of 2024, and inventory continued to decrease. STMicroelectronics' revenue increased by an average of 7% quarter-on-quarter in 2022 and 2023, but this trend also ended in the first quarter of 2024, with sales in the automotive industry falling by 23%.

For many of these leading automotive semiconductor suppliers, automotive semiconductor sales are the main factor determining the company's overall performance: in 2023, automotive semiconductors accounted for 53% of the total sales of suppliers, while for Infineon, NXP and STMicroelectronics, the figures were 56%, 56% and 41% respectively.

02. From 2024 to 2026, automobile production will slow down significantly

According to the International Federation of Automobile Manufacturers (OICA), motor vehicle production is expected to increase by 10% year-on-year to 93.5 million units in 2023, down from the historical high of 97.3 million units in 2017. Production fell modestly in 2018 and 2019, and fell by 15.4% in 2020 due to factory shutdowns during the pandemic.

SI noted that "despite this, demand for cars appears to be largely being met." S&P Global Mobility predicts that global light vehicle production growth will be in the range of 0-2% from 2024 to 2026.

03. The popularity of L4 autonomous driving is still unclear

Despite the slowdown in car production, automotive semiconductors are growing because the number of semiconductors installed per car has increased. The growing market for xEVs ( electric vehicles ) equipped with many electronic components is increasing the demand for automotive semiconductors. According to a study by Autovista24, electric vehicle sales are expected to increase by 54% year-on-year in 2022 and 35% in 2023. However, growth is expected to slow down starting in 2024.

Driver assistance systems are also an important driver of the automotive semiconductor market, but level 4/5 autonomous driving is not expected to become widespread for a long time. McKinsey & Company predicts that by 2030, 12% of passenger cars will be equipped with level 4 autonomous driving. S&P Global Mobility's forecast is more conservative, estimating that by 2035, only about 6% of vehicles will be equipped with level 4 autonomous driving. For this reason, SI does not expect autonomous vehicles to have a significant impact on the automotive semiconductor market in the next few years.

04. Automotive semiconductors are no longer a “market driver”

SI recalls that “in 2022-2023, automotive was the only bright spot in the market amid a sluggish semiconductor market. However, the growth rate of the automotive semiconductor market is expected to decline due to the aforementioned slowdown in automobile production, slower growth in electric vehicles, and delays in the introduction of autonomous driving.

It will be difficult for automobiles to play a leading role in the semiconductor market in the next few years. Compared with automobiles, the semiconductor market is expected to be driven by the computer market, which is accelerating due to artificial intelligence ( AI ) applications, the memory market recovering from the demand downturn, and the smartphone market recovering from the downturn in 2022-2023.

SI noted that major suppliers whose revenues are based on automotive semiconductors are likely to lag behind market growth in the coming years.