Chinese companies are swiftly entering the auto chip manufacturing arena in response to the increasing demand in the world’s largest car market. In 2023, the number of local auto chipmakers in China exceeded 300, a nearly tenfold increase from three years prior, according to Yuan Chengyin, the general manager of the National New Energy Vehicle Technology Innovation Center, a research center funded by the Ministry of Science and Technology.
The robust demand for smart driving cars in China is a key factor driving the growth of the auto chip industry. Zhang Qiang, the chairman of Xinchi Technology, an auto chipmaker based in Wuxi, emphasized that China provides an optimal market for auto chipmakers due to the elevated demand for smart driving cars, surpassing that of other countries.
Despite overcapacity in China’s car industry, increasing exports help mitigate excessive supply, creating a substantial market for both Chinese vehicles and auto chips.
Chinese carmakers achieved record-breaking overseas sales last year, positioning China to potentially surpass Japan as the world’s leading car exporter. With over 30 million vehicles produced in 2023, Chinese car exports experienced a 58% surge to nearly 5 million units, according to data from the China Association of Automobile Manufacturers.
However, challenges arise in the export market, particularly regarding quality requirements for overseas models. Zhang pointed out that some domestic models may use lower-grade chips, which have higher defect rates and shorter lifespans compared to automotive-grade chips. Using subpar chips can lead to high recall costs and potential disruptions in trade relationships.
Zhang emphasized the importance of automotive-grade chips, stating that his company sold 3 million such chips last year, partnering with 90% of domestic automakers. The production of automotive-grade chips requires patience and determination, with testing for reliability and security taking two to three years.
While the current usage of local automotive-grade chips in Chinese vehicles stands at around 8% to 10%, there is potential for further growth. Barclays research analysts anticipate the production of chips in China to more than double in five to seven years, potentially leading to oversupply.
As the demand for new energy vehicles and smart driving technologies continues to rise, the development of automotive-grade chips presents a significant opportunity. Zhao Yi, deputy general manager of JW Insights, a semiconductor industry consulting company, emphasized the need for Chinese companies to enhance their competitiveness in this sector as global manufacturers enter the automotive-grade chip market.