30 May 2024 -

China drives for auto chip self-sufficiency; targets 25% by 2025


China is accelerating its efforts to establish a self-sufficient semiconductor supply chain, particularly in the automotive sector. The Chinese government has reportedly instructed major domestic carmakers, including BYD, SAIC Motor, Dongfeng Motor, GAC Motor, and FAW Group, to increase their local chip procurement to 20-25% by 2025, according to Nikkei Asia and TrendForce. This ambitious goal represents a significant increase from the current 10% and is a key component of China’s broader strategy to bolster its domestic semiconductor industry.

The move comes amidst escalating tensions with the United States, which has imposed tariffs on Chinese electric vehicles (EVs) and is planning further restrictions on semiconductor exports. By increasing the local procurement of automotive chips, the Chinese government aims to reduce its reliance on foreign suppliers and mitigate the impact of these trade restrictions.

“The goal is ambitious,” one industry insider told Nikkei Asia, “to eventually use all locally made chips for automobiles.” This reflects the Chinese government’s long-term vision of achieving complete self-sufficiency in the automotive chip sector. However, this is not without its challenges.

The automotive industry requires high levels of reliability and safety, making carmakers traditionally hesitant to switch suppliers. The sector has long been dominated by Western and Japanese companies such as Infineon, Texas Instruments, STMicroelectronics, NXP, and Renesas. Replacing these established players with domestic suppliers could pose a significant hurdle.

Despite these challenges, the Chinese government is confident in its ability to achieve its goal. The Ministry of Industry and Information Technology (MIIT) is reportedly encouraging domestic carmakers to meet the new targets through incentives rather than mandatory regulations. Additionally, the fact that most automotive chips do not require cutting-edge production technologies means that Chinese chipmakers are not significantly affected by US export controls, giving them a potential advantage.

Furthermore, the industry’s shift towards electric vehicles (EVs) presents a unique opportunity for Chinese chipmakers. “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,” said Antonia Hmaidi, senior analyst with Mercator Institute for China Studies, as reported in The FT.

While the complete replacement of foreign chips may not be feasible, especially for mission-critical functions like brake systems, the push for increased local procurement is a clear indication of China’s determination to strengthen its domestic semiconductor industry. This move could have far-reaching implications for the global automotive and semiconductor markets, potentially reshaping the competitive landscape and accelerating technological innovation within China.

Semiconductor technology advancements in the automotive sector have grown to an extent where there is a profound shortage of chips, claims website Appinventiv. While the shortage is mostly a supply chain challenge, the implication is clear – semiconductors are here to transform the auto space.

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