China asks automakers to use up to 25% local chips by 2025

Stay informed with free updates

China is pushing the country’s biggest automakers to source up to a quarter of their chips locally by 2025, as the world’s largest auto market looks to build a semiconductor supply chain amid escalating tensions with the US.

The Ministry of Industry and Information Technology has asked automakers including SAIC Motor, BYD, Dongfeng Motor, GAC Motor and FAW Group to increase their local purchasing of auto-related chips to 20-25 percent by next year, according to people briefed on the matter. about the situation. issue, with the ultimate goal of increasing the ratio well above the original target.

More than 30 million cars are sold in China every year, about a third of global sales, but the local car chip supply is only about 10 percent.

The government-led local procurement guidelines are not mandatory so far, people with knowledge of the matter said. Instead, a reward or credit system will encourage domestic automakers to adhere to national policies. The target of 20-25 percent relates to both the number of chips per car and their share in the total purchase value.

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

This article comes from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, economics, business and international affairs. Our in-house 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 largest and fastest-growing listed companies from 11 economies outside Japan.

Subscribe | Group subscriptions

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

Beijing’s attempt to boost domestic chip use coincides with an intensification of the technology war between the US and China. The US has announced plans to impose 100 percent tariffs on Chinese EVs this year and to increase tariffs on Chinese-made semiconductors to 50 percent by 2025.

The majority of chips used in vehicles, such as for sensors, microcontrollers and power management, do not require advanced manufacturing tools and technologies. This means that Chinese chip manufacturers and suppliers could benefit from the policy push because they are technically unaffected by US export control restrictions on advanced chip technology.

Reliability and safety are essential in automotive chips, which is why car manufacturers 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 at the 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 automakers scrambled for supplies.

The EV shift in the industry is another opportunity. “In electric vehicles, the industry does not yet have supply chains in place, which means now is a good time to do so [newcomers] to enter the market,” Hmaidi said.

“For EVs, we are seeing a complete realignment of the supply chain,” she added. “Chinese companies view electric vehicles as a smartphone on wheels. . . Many of these skills and components that work for smartphones also work for electric vehicles.”

However, she added that it was unlikely that Chinese chipmakers would be able to completely replace foreign chips. For business-critical functions such as braking systems, replacing established international suppliers is a challenge.

The value of semiconductors per car is expected to rise from $540 in 2022 to $912 in 2028, with the market size nearly doubling from $43 billion to $84.3 billion over the same period, thanks to significantly more electric features, according to chip research firm Yole Group.

Several Chinese automakers 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 5 million cars in 2023, up nearly 60 percent on the year, according to the China Association of Automobile Manufacturers. Of these, 1.2 million were electric vehicles, an increase of more than 77 percent compared to a year earlier.

China has a significant lead in electric cars, which accounted for 18 percent of all cars sold in the country in 2023, up from 14 percent in 2022 and just 2 percent in 2018, the International Energy Agency said. By 2023, almost 60 percent of the world’s new EV registrations were in China, almost 25 percent in Europe and 10 percent in the US.

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

Related stories

Leave a Reply

Your email address will not be published. Required fields are marked *