Automotive chips: the high-end battlefield in the field of automotive electronics

In recent days, the topic of "chip shortage affecting China's automobile production" has caused a lot of controversy and attracted widespread attention in the industry.

According to Cailianshe, the global shortage of semiconductors has put the automotive manufacturing industry at great risk. Recently, German automaker Volkswagen Group, auto parts giant Continental AG and Bosch Group have issued warnings that the global shortage of automotive chips may affect automobile production.

This includes the Chinese market, which has seen an increase in demand due to market recovery. This impact will continue into next year. The tight chip supply has threatened the security of the global automotive industry supply chain. The Chinese automotive industry was the first to feel the tense atmosphere, and some car companies have been forced to suspend production due to "chip shortages."

The electrification and intelligence of automobiles are the main driving forces for the growth of automotive semiconductors. With the increase in the number of electric vehicles and the continuous penetration of intelligent driving, it is estimated that by 2025, the global automotive semiconductor market capacity will grow from US$34.5 billion in 2017 to RMB 67 billion.

With the great changes in the intelligent connected car industry, the concept of software-defined cars has become a consensus. Chips + operating systems + application algorithms + data build a closed loop of core technologies, and automotive chips have become the cornerstone of the ecological cycle development of software-defined cars.

Automotive chips are the track with the highest entry threshold in automotive electronics. The industry requires a large amount of investment, has high technical barriers, and has very high requirements for new entrants, so existing players in the industry are not easily subverted by new entrants.

The conditions for automotive-grade chips are stringent, the standards are much higher than those for consumer-grade chips, and the certification process is long. It usually takes about two years for a chip to complete automotive-grade certification, and after entering the supply chain of an automotive company, it generally has a supply cycle of 5-10 years.

Currently, benefiting from the electrification of automobiles and the increase in the sales of new energy vehicles, the scale of the automotive chip market has grown steadily, with the growth rate far higher than the growth rate of vehicle sales in the same period.

According to data provided by IHS, the global automotive electronic chip market size reached US$41.8 billion in 2018, and the average chip value of newly sold passenger cars will reach US$437 (about RMB 3,060). Based on the distribution of chip categories in 2019, the analog chip market size is expected to reach US$13.3 billion in 2020. With the continuous improvement of the degree of automotive electrification in the future, the automotive chip industry has great potential.

As the automotive chip industry has a high technical threshold, traditional foreign chip manufacturers still dominate the domestic original equipment automotive chip market.

Both chips and algorithms are technically difficult, so the market is mainly dominated by competition among leading companies.

In the field of decision-making chips, overseas companies include NVIDIA, Intel (acquired Mobileye), Qualcomm, NXP, Renesas Electronics, Texas Instruments, Infineon, ON Semiconductor, etc.

Tesla develops and uses its own FSD chip, reducing unnecessary software and hardware modules, shortening the R&D cycle, improving energy efficiency, optimizing algorithms based on large amounts of user data, leading industry development, and is classified as an independent level 1 chip.

In the context of an uncertain competitive landscape, leading domestic technology companies have greater development opportunities in this field, including Huawei, Cambrian, and Horizon Robotics in the chip field, and BAT in the algorithm field.

The research and development of automotive chips requires a large amount of capital, talent, long-term investment and experience accumulation; domestic companies still need to improve their chip design capabilities and strengthen supply chain and technology collaboration.

The functional chips of traditional automobiles are only suitable for local functions such as engine control, battery management, and entertainment control, and cannot meet the needs of intelligent driving-related calculations with high data volumes.

In recent years, with the increase in the penetration rate of intelligent driving, global chip giants have entered the automotive industry and launched master control chips with AI computing capabilities, which serve as the "brain" of self-driving cars.

The market size of main control chips is expected to grow rapidly, and IHS predicts that it will reach US$4 billion in 2020.

The main control chip giants have strong AI computing advantages, and the functional chip manufacturers have rich experience in the automotive industry chain. Mergers and acquisitions and alliances between the two camps are frequent. So far, Nvidia has reached cooperation with more than 370 global vehicle manufacturers and first-tier suppliers; Intel acquired Mobileye to enter the automotive industry; Qualcomm once intended to acquire NXP and other companies.

Since smart driving involves many types of chips, different suppliers have different areas of expertise, and the smart driving technology routes of each manufacturer are also different. Therefore, the current market structure is not stable and the market share is relatively dispersed.

Looking at the global market situation, NXP, which has the largest share, only accounts for 14%.

In the future, automotive data processing chips will gradually develop towards intelligent AI, and the chip configuration will develop from MCU to SOC heterogeneous chips.

According to Cailianshe, combined with the feedback from surveyed companies, the China Association of Automobile Manufacturers summarized the reasons for the chip supply shortage in some companies as follows:

(I) In recent years, the global chip industry has been relatively conservative in its capacity investment, and the imbalance between supply and demand had already manifested itself before the COVID-19 pandemic. The pandemic has exacerbated the cautiousness of capacity investment. In the first half of the year, the chip industry was conservative in its forecasts for the consumer electronics and automotive markets, and was insufficiently prepared for the positive development of the Chinese automotive market in the second half of this year.

(2) Driven by the development of 5G technology, the demand for chips in the consumer electronics field is increasing rapidly this year. Chip production capacity has encountered challenges, which has occupied part of the production capacity of automotive chips.

And this trend may further intensify in 2021. At the same time, many chip manufacturers are cutting necessary capital expenditures in the automotive industry, raising prices, and reducing production quotas for chips in the automotive industry.

(3) Due to the impact of the second wave of the COVID-19 epidemic in Europe and Southeast Asia, major chip suppliers have reduced their production capacity or closed factories, which has further aggravated the imbalance between chip supply and demand and caused some downstream companies to face the risk of chip shortages or even supply interruptions.

(IV) With the continuous improvement of the electrification, intelligence and networking of automobiles, the value of automotive chips per vehicle continues to increase, driving the global demand for automotive chips to grow faster than the sales growth of complete vehicles, which has also directly caused an imbalance in chip supply and demand.

Relevant personnel from the China Association of Automobile Manufacturers also believe that due to the shortage of chip supply, the production of some companies may be greatly affected in the first quarter of next year. However, for the whole of next year, the impact of the chip shortage will not be too great, and it is difficult to make a quantitative estimate at present.

As companies at all links in the industrial chain are lengthening their stocking cycles and chip production capacity remains insufficient in the short term, a rise in chip prices may be inevitable.