China asks carmakers to use up to 25% local chips by 2025 – Shield Smart

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China is urging the country’s top carmakers to source up to a quarter of their chips locally by 2025 as the world’s biggest automotive market looks to build a semiconductor supply chain amid escalating tensions with the US.

The Ministry of Industry and Information Technology has asked carmakers including SAIC Motor, BYD, Dongfeng Motor, GAC Motor and FAW Group to increase their local procurement of automotive-related chips to 20-25 per cent by next year, according to people briefed on the matter, with an eventual goal of increasing the ratio well beyond the initial target.

More than 30mn cars are sold in China each year, about a third of global sales, but local automotive chip supplies are only about 10 per cent.

The government-led local procurement guidelines are not mandatory so far, people with knowledge of the matter said. Instead, an award or credit system will encourage domestic carmakers to adhere to the national policy. The 20-25 per cent goal refers to both the number of chips per car and their share of the total procurement value.

“The goal is ambitious,” one of the people said, “to eventually use all locally made chips for automobiles.”

This article is from Nikkei Asiaa global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.

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China also aims to increase local procurement of other electric vehicle components, such as electronic control units, displays, thermal and charging supply systems, Nikkei Asia has learned.

Beijing’s push to boost domestic chip use coincides with an intensifying tech war between the US and China. The US has announced plans to impose 100 per cent tariffs on Chinese EVs this year and to raise tariffs on Chinese-made semiconductors to 50 per cent in 2025.

The majority of chips used in vehicles, such as for sensors, microcontrollers and power management, do not need cutting-edge production tools and technologies. This means Chinese chip manufacturers and suppliers could benefit from the policy push, as they are not technically affected by US export control curbs on advanced chipmaking technology.

Reliability and safety are essential in automotive chips, which is why carmakers are usually reluctant to switch suppliers. The sector has long been dominated by Western and Japanese companies such as Infineon, Texas Instruments, STMicroelectronics, NXP and Renesas.

Antonia Hmaidi, senior analyst with Mercator Institute for China Studies, said the unprecedented chip shortage of 2020 and 2021 presented an opportunity for Chinese chipmakers to enter the domestic automotive supply chain as carmakers scrambled for supplies.

The industry’s EV shift is another opportunity. “In electric vehicles, the industry doesn’t have established supply chains yet, which means now it’s a good time for [newcomers] to get into the market,” Hmaidi said.

“For EVs, we are seeing a complete reshuffle of the supply chain,” she added. “Chinese companies consider EVs to be a smartphone on wheels so . . . a lot of these skills and components that work for smartphones also work for EVs.”

She added, however, that it was not likely that Chinese chipmakers would be able to replace foreign chips completely. For mission-critical functions such as brake systems, replacing established international suppliers is challenging.

Semiconductor value per car is forecast to increase to $912 by 2028 from $540 in 2022, with the market size to nearly double to $84.3bn from $43bn over the same period thanks to significantly more electric features, according to chip research company Yole Group.

Several Chinese carmakers have their own semiconductor capabilities, such as BYD. European chipmaker STMicroelectronics formed a joint venture with China’s San’an Optoelectronics to produce silicon carbide chips in China to continue serving the local market.

China exported nearly 5mn cars in 2023, increasing nearly 60 per cent on the year, according to the China Association of Automobile Manufacturers. Of that figure, 1.2mn were EVs, up more than 77 per cent from a year earlier.

China has a significant edge in EVs, which accounted for 18 per cent of all cars sold in the country in 2023, up from 14 per cent in 2022 and only 2 per cent in 2018, according to the International Energy Agency. In 2023, nearly 60 per cent of the world’s new EV registrations were in China, nearly 25 per cent in Europe and 10 per cent in the US.

A version of this article was first published by Nikkei Asia on May 16. ©2024 Nikkei Inc. All rights reserved.

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