China's Automakers "Do It Themselves" Chip War in the Cockpit: China Builds its Own, Xiaomi is Now on Board

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China's car manufacturers say they have "no other choice." They have to build their car chips themselves. This is exactly what Lei Jun, the founder of the electronics manufacturer Xiaomi, which is now also building electric cars, recently stated.

"As for the battle for chips, we have no other choice," Lei wrote in a post for his millions of followers on China's social media last May. At the same time, he announced that the first car chip developed by Xiaomi itself would be unveiled "soon." He did not yet provide details about the architecture or intended use — whether for autonomous driving or infotainment. However, Xiaomi is joining a growing group of car manufacturers breaking away from Western chipmakers.

Nio, Xpeng, and Li Auto have been working on developing their own automotive semiconductors for years. "Going solo" is definitely the answer for some Chinese car manufacturers, writes the Chinese professional portal 36kr. The fact that this trend is now accelerating has two main reasons. In-house development is, on the one hand, the Chinese companies' response to the US chip export controls.

In Washington, elected representatives have been busy for several years denying China access to high-ranking semiconductors, particularly those capable of AI. Nvidia is already prohibited from delivering many of its best chips to China, losing more and more market share there. And just earlier this month, the latest tightening in a long list of export controls by the US towards China came into effect. New restrictions on the delivery of EDA software for chip design to China have come into force, reports the Financial Times.

Again Here: Embargos Don't Really Ignite

What the increasingly intense American attempt to cut China off from modern chip and AI technology has been causing for several years now is becoming very evident in the automotive industry. Jensen Huang, the CEO of the American chip manufacturer Nvidia, has illustrated it very vividly in the recent past.

Washington's export controls have failed, Huang said during a visit to Taiwan in May. They have given Chinese companies "the spirit, the energy, and the government support" they need "to accelerate their own development," according to the Nvidia CEO. It is a misconception to think that Chinese industrialists can be kept away from modern chips. "If they don't have enough Nvidia, they will use their own," the New York Times quotes Huang from Taipei.

On the other hand, and this is the second reason why China's car manufacturers believe they have "no other choice," supply difficulties from Nvidia have also contributed to the Chinese do-it-yourself efforts. Technical difficulties had repeatedly delayed the delivery of Nvidia's Thor chip. "Thor is now so delayed that competitor chips are already available," writes 36Kr. Nio and Xpeng have since removed Thor from their strategies; the risk is too great that planned models could be stalled by chip delivery problems.

The China Association of Automobile Manufacturers also recommended "caution when purchasing American chips" in a public statement, the Chinese auto portal Gasgoo reports.

Supply Chain Security for Market Dominance

The last thing Chinese car manufacturers can afford, given the very tough competition in the domestic and international car market, are uncertainties in supply chains, whether triggered by political activism or manufacturing delivery bottlenecks. In China, there is a forced reliance on expensive but promising self-development of car chips to ensure a certain autonomy over the product pipeline.

Nio has now installed its Shenji NX9031, based on a five-nanometer process, in several models like the ET9, ES6, and EC6. The chip replaces the function "of four conventional smart-driving chips," said William Li, chairman and CEO of Nio, to CNEVPOST. This not only saves costs but also achieves significantly better integration into its own SkyOS operating system. For the Nvidia founder, it must be painful to recall that Nio originally wanted to use Nvidia chips.

The same was true for Xpeng. The Chinese electric car startup had hoped for Nvidia, but then designed its own Turing chip, which is equipped with two specially developed neural cores. According to the company's own statements, the chip achieves a computing power of about 700 TOPS — comparable to the latest generation of Nvidia's Thor chips, which, after multiple delays, were finally able to be delivered in a slimmed-down version.

At the same time, Chinese car manufacturers are working on innovations concerning their car chips. They are striving to bypass the limitations of edge computing and bring the power of LLM into the car. This is meant to translate human-like "common sense" decisions into concrete driving instructions such as a lane change or brake application. "If we rely solely on vehicle computing, we reach limits," said Xpeng's autonomy chief Li Liyun at a technical briefing in April, reports 36Kr.

Distilled AI Models for the Car

Xpeng is now attempting a hybrid strategy: large AI models with up to 72 billion parameters are trained in the cloud and then distilled into smaller models for vehicle use. The Turing chip then processes these locally in the vehicle. Initial tests with this system architecture are reported to have been "surprisingly powerful," according to the company.

Meanwhile, newly joined in the ranks of "do-it-yourself" chip manufacturers in the Chinese automotive industry, Xiaomi, which has also just introduced its own new smartphone chip "Xring O1," relies on the Taiwanese contract manufacturer TSMC for chip production. Thus, it chooses the same path as Apple and Nvidia. However, according to a report by TrendForce, Xiaomi uses American EDA software for its internal design processes, which are now subject to export controls. Access to these tools is uncertain in the future, which could also affect Xiaomi's car chip plans, according to the trade medium.

Nevertheless, Lei Jun remains combative. Xiaomi intends to invest at least 50 billion yuan (around six billion euros) in chip development over the next ten years, he announced. This year alone, over six billion yuan, about 730 million euros, is to be invested. Xiaomi has a R&D team with 2,500 employees.

The Government Supports the Ambitions

The Chinese government supports these efforts. The state broadcaster CCTV referred to Xiaomi's announcement of its latest smartphone chip as a "breakthrough," showing that private companies in China are also capable of achieving technological sovereignty. Naturally, by using their own chips, Chinese car manufacturers not only increase their response speed but also their margin. Nio, for instance, was able to replace the use of four Nvidia Orin-X chips with two of its own, as its founder claims, and aims to achieve cost reductions that could be significant in the price competition in the domestic market.

The shift to Chinese chip autonomy in the automotive industry is happening rapidly. "Decoupling begins: Xpeng launches Turing AI chip in the second quarter and reduces dependence on Nvidia," was recently headlined by the CarNewsChina portal. Tesla had shown Chinese car manufacturers with its "Full Self Driving" architecture how far vertical integration can go. Now the Chinese are reluctantly following suit, with their own operating systems, data platforms, and AI models. As a result, they will need to order less from the Western abroad in the future. (sb)