China wants to move away from foreign car chips

Automotive electronics China wants to move away from foreign car chips

2023-04-20 From Henrik Bork 5 min Reading Time

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China's government is ordering local car bosses to use semiconductors produced within the country, reports the generally well-informed business magazine Nikkei Asia. For foreign semiconductor companies including Infineon, these are expected but unfortunately not good news.

Electric Discharge: In the growing market of electromobility, China also wants to increasingly take control of power electronics and push foreign suppliers out of the market in the long term.(Image: freely licensed / Pixabay) — Electric Discharge: In the growing market of electromobility, China also wants to increasingly take control of power electronics and push foreign suppliers out of the market in the long term.
(Image: freely licensed / Pixabay)

China's government is accelerating its campaign for greater self-sufficiency in the semiconductor industry. The first focus is on chips for the automotive industry. On March 28, China's Ministry of Industry and Information Technology (MIIT) launched an initiative to formulate its own Chinese standards for automotive chips. The ministry published a guide stating that by the year 2025, China should have already adopted 30 of its own industrial standards for the automotive semiconductor industry. By the year 2030, there should be 70 domestic standards for automotive chips.

These "Guidelines for the Construction of National Automotive Chip Standard System, 2023 Edition" have now been published as a draft law, for which comments from the industry and the public are now being collected.

Chinese standards for environmental compatibility, functional safety, and data security

China's goal is clear: It wants to free itself from its dependency on American and other foreign manufacturers as quickly as possible. "We need to place more domestically produced chips in our vehicles," said Feng Xingya, the General Manager of the Guangzhou Automobile Group (GAC), recently in a session on the sidelines of the National People's Congress in Beijing.

The new standards will set requirements for the environmental compatibility, functional safety, and data security of the chips, and standardize many technical details, which benefits the establishment of complete supply chains in the Chinese semiconductor industry. The aim is to "cultivate the environment for independent innovations of Chinese automotive chips and their applications," as quoted by the semiconductor industry portal Bandaoti Hangye Guancha from the draft.

Order from above: use Chinese car chips!

According to information from the Japanese business newspaper Nikkei Asia, the communist leadership of China had already ordered leading managers of Chinese automotive corporations to a secret meeting in Shanghai on November 8 of last year.

There, they were met by Miao Wei, a former Industry Minister and once active in the automotive industry himself. The top managers of the Chinese automotive industry were told to switch completely to Chinese chips, the paper reports, citing a "well-informed source."

Drastic impacts on German semiconductor companies are looming

How quickly and how far China will advance in this strategic endeavor is an enormously important factor for the future of the German semiconductor industry as well. Among other things, it will significantly determine the future of Infineon, the Munich-based world's largest manufacturer of chips for the automotive industry – but also the business future of relatively new competitors in the automotive semiconductor market like Bosch or Continental.

According to various market studies, the six leading non-Chinese chip manufacturers for cars – Infineon, NXP, Microchip, Renesas, ST, and Texas Instruments – currently still control about 90 percent of the global market for automotive chips.

China's self-sufficiency rate or "autarky" in this segment is currently estimated by various market researchers to be between 5 and 10 percent – while at the same time, all emphasize how quickly the Chinese are making progress in building their own automotive chip industry. China's dependence on imports is particularly strong for control chips (microcontrollers, MCU), where the self-sufficiency rate sometimes drops to as low as one percent, depending on the performance of the semiconductors.

BYD: Manufacturer of electric cars and power semiconductors

For this reason, the Chinese flagship company BYD, which manufactures both electric and hybrid cars as well as semiconductors, has started to catch up with foreign competition in the field of IGBT modules. This effort has significantly accelerated in the past year against the backdrop of global supply shortages and geopolitical tensions.

From January to December 2022, the number of chips produced by "BYD Semiconductor" increased from 8,000 to 22,000 units per month. The annual capacity will soon reach 200,000 units, sufficient for about 50,000 cars, reports the Chinese economic portal Lanfu Caijing.

BYD has been heavily investing in the research & development of MCUs for over ten years, as have other rising stars in the Chinese automotive chip market, such as Fudan Micro. For many years one of the market leaders in industrial MCUs in China, having already sold more than half a billion of them, this chip manufacturer listed on the Hong Kong stock exchange is now working on a large-scale entry into the business with MCUs for automobiles.

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Chip boycotts fuel the drive for an independent semiconductor industry

Building an independent semiconductor industry has long been a dream of the communist leadership in Beijing. Due to the chip boycotts from Washington, Chinese state and party leader Xi Jinping now has no choice but to support the domestic industry even more strongly and quickly than before.

Time is of the essence, as power semiconductors are not only needed for electric cars but also in virtually all other industries that China is currently trying to modernize. This ranges from photovoltaics and wind power, to the digitalization and automation of the manufacturing industry, as well as 5G networks and cloud servers.

Chinese manufacturers of power electronics in the automotive sector, in addition to those already mentioned, companies such as Sinowealth, Gigadevice, Chipways, ChipON, AutoChips, and Starpower Semiconductor, are now receiving strong political support from the Beijing headquarters for these reasons.

So far, foreign manufacturers have also benefited from the e-car boom in China

Infineon and the other global market leaders are currently also benefiting from the rapid upswing in e-mobility in China, where luxurious limousines may require up to 100 MCUs, not just 10 or a few dozen as before. Infineon's chip business is doing well and, according to forecasts in media reports, is expected to expand by a factor of 2.5 in the coming years.

Overnight, the Germans and all foreigners will not be pushed out of the Chinese market for automotive power electronics. However, in the long term, there is cause for concern, including for Infineon. China is aiming for "decoupling," wanting to completely replace foreign suppliers in the long run and, ideally, one day supply the e-mobility market – the largest and fastest-growing on the planet – solely with self-produced, Chinese power ICs.

A perfect storm is brewing for the German semiconductor industry – and it will reach them sooner or later. (me)