(Report produced by: Ping An of China)
1 Status: The "three modernizations" of automobiles have accelerated, and the application of chips has been significantly improved
The "three modernizations" of automobiles have accelerated, and on-board chips have been widely used
With the acceleration of electrification, networking and intelligence, the level of automotive informatization has increased unprecedentedly, and the application of chips has increased rapidly. In the earliest days, the equipment on the car was all mechanical; with the development of the electronics industry, some control systems of the car began to be converted from mechanization to electronics. At present, automotive chips have been widely used in power systems, body, cockpit, chassis and safety and many other fields. The difference between automotive chips and computing and consumer electronics chips is that automotive chips rarely appear alone, they are embedded in major functional units, and most occasions are the core.
The types of automotive chips are relatively complex, mainly divided into four categories: one is the functional chip, mainly refers to the MCU (microcontroller chip) and memory, of which the MCU is responsible for the implementation of specific control functions, undertaking a variety of data processing diagnosis and operation in the device; the second is the main control chip, in the intelligent cockpit, automatic driving and other key controllers to undertake the core processing and operation tasks of the SoC, internal integration of CPU, GPU, NPU, ISP and a series of computing units; the third is the power semiconductor, Mainly IGBTs and MOSFETs; the fourth is sensor chips, including navigation, CIS and radar.
The development, certification and introduction test cycle of vehicle-grade chips is long, and the threshold for getting on the car is high
Compared with consumer-grade chips, the verification cycle of automotive-grade chips is longer (3-5 years), and entering Tier 1 or the car factory requires rigorous certification work. There are two main certifications: 1) the AEC-Q100 (IC) promoted by the North American automotive industry, and 2) compliance with the ISO/TS 16949 specification for supply chain quality management with zero defects. Overall, automotive chips mainly focus on three aspects: 1) reliability requirements, relevant standards include AEC-Q100, IATF 16949 specifications, national regulations and manufacturer requirements, etc.; 2) design life, more than 20 years; 3) high safety requirements, including functional safety international standards ISO 26262, ISO 21448 expected functional safety, ISO21434, etc.
Automotive functional chips are mainly mature processes, and the main control chips continue to pursue high-end processes
There are large differences in the process requirements of different automotive chips. 1) Functional chips mainly rely on mature processes. Automotive chips are not limited by space, the requirements of high integration are not very urgent, and the main functional chips are used in low computing power fields such as generators, chassis, and safety, safety, reliability and low cost have become the main considerations, and mature processes are just in line with the needs of such chips. As a result, we see that most of the chips needed in cars were manufactured 15 years ago or earlier. To further reduce costs, the chip industry began using 300 mm wafers after 2000, but most of the old 200 mm production lines continued to be used. 2) The main control chip continues to move towards the high-end process. In recent years, with the development of automobile intelligence, the urgent demand for high computing power of higher level automatic driving is promoting the extension of the automotive computing power platform process to 7 nanometers and below.
Automotive chips participate in the market as Tier2 and have a strong relationship with Tier1 and OEMs
Automotive chip manufacturers generally participate in the entire automotive supply chain as Tier2 (secondary supplier), the competition pattern of traditional chip (functional chip) manufacturers is relatively stable, Infineon, NXP, Renesas, STMicroelectronics, TI and other companies are at the forefront of the market, in the MCU, power semiconductors, sensors and other segments, have their own expertise, and Tier1 (Tier 1 suppliers) formed a strong supply relationship. In recent years, with the improvement of the requirements of automatic driving on computing power, the demand for large computing power, especially AI chips, has risen, and players of intelligent computing and consumer-level tracks have begun to enter this field, and some entrepreneurial companies in the mainland have also had a place in this field.
Automotive chips account for 12% of global semiconductor applications, with MCUs and analog circuits accounting for the top
In terms of overall scale, automotive chips account for about 10% of the entire integrated circuit market. According to SIA data, the revenue scale of automotive chips reached $50.1 billion in 2020, down 0.3% year-on-year, accounting for 12% of the entire chip market. From the perspective of product structure, MCU and analog circuits account for the first place. According to ICVTank data, in 2019, MCU accounted for 30% of global automotive chips, analog circuits accounted for 29%, sensors accounted for about 17%, logic circuits accounted for 10%, discrete devices and memory market share were 7%. The market landscape has not changed much. After The acquisition of Cyprus, Infineon ranked first in the market, and the company was in a leading position in power semiconductors and MCUs; NXP and Renesas were more competitive, of which Renesas was in a leading position in the MCU market.
Important pieces
MCU is the protagonist of functional chips, and the application of new energy vehicles has increased significantly
MCU is a microcontrol unit that integrates a central processing unit, storage, timer, input and output interface on the same chip, also known as a microcontroller. MCUs are mainly used in automatically controlled products and equipment, and can be applied to industrial, automotive, communications and computers, and consumer electronics. Among them, the automobile is the largest application field of MCU, the traditional car bicycle will use an average of about 70, while the new energy vehicle needs to use more than 300, the application areas include ADAS, body, chassis and safety, infotainment, power system, etc., almost everywhere.
Automotive MCUs will continue to grow rapidly, and the market pattern is solidified and difficult to change
Automotive MCUs will continue to grow faster. ACCORDING TO IC Insights, the global automotive MCU market size will be $6.2 billion in 2020. In 2021, the demand for automotive MCUs is strong, and the market size is expected to grow significantly by 23% to REACH $7.61 billion; in 2025, the market size is expected to reach nearly $12 billion, corresponding to a compound average growth rate of 14.1% from 2021 to 2025, which is significantly higher than the growth rate of the overall MCU market in the next three years by 8%.
The fragmentation of the on-board MCU continues. Renesas, NXP and Infineon are market leaders, Texas Instruments, Microchip Technologies, STMicroelectronics, etc. also have relatively strong competitiveness, these manufacturers have formed a relatively close relationship with the car manufacturers, new entrants are more difficult, and the domestic market is basically occupied by the leading international manufacturers. Products of different manufacturers are difficult to replace each other, a large part of the reason is that the MCU product architecture is unique, and it is unlikely to find a second product to replace, which also brings potential risks to the entire industry chain. (Source: Future Think Tank)
2 Lack of core review: The innate shortage of supply chain is the main reason, and the impact of the epidemic has added fuel to the fire
Review| since 2020, the automobile "chip famine" has swept the world, and the production of car companies has been seriously reduced
Since the second half of 2020, there has been a "chip shortage" in the market, and automotive chips have been the most affected, and car companies have had to cut production on a large scale. Volkswagen, GM, Ford, Honda, Toyota and other first-line manufacturers have also experienced different degrees of production reduction or even suspension of production due to lack of cores, and many automobile companies have not completed their annual sales targets. According to AFS statistics, in 2021, due to the shortage of chips, the cumulative production reduction in the global automotive market is about 10.2 million units. Among them, Asian automakers have been the most affected, with production cuts in other parts of Asia reaching 1.74 million units in addition to nearly two million units in China, and production cuts in North America and Europe also on a large scale.
The inducement | supply chain is inherently insufficient, "natural disasters", "man-made disasters" and so on to trigger the lack of core of automobiles
The lack of cores in automobiles that began in the second half of 2020 and has affected so far has already brought about the loss of more than 10 million vehicles in 2021, and the related impact is continuing in the first quarter of 2022. On the one hand, the inherent defects in the supply chain of the automotive industry are being magnified, and there is a deviation in the judgment of the automotive market demand by the car factories; on the other hand, the production capacity of automotive chips is originally tight, coupled with the squeeze of consumer electronics and other aspects, the production capacity left for automotive chips is very limited, and the possibility of new production capacity in the short term is unlikely.
The | the investment in the production capacity of on-board chips is conservative, and it is difficult to respond to sudden demand growth
Global investment in automotive chip production capacity is relatively conservative. As mentioned earlier, automotive chips account for around 10% of the total sales of the global semiconductor market, and the proportion is not high. Taking TSMC, the world's largest foundry, as an example, the proportion of the automotive chip business in its total business basically does not exceed 5%. Moreover, the gross profit margin of in-vehicle chips is lower than that of consumer electronics, and the technical requirements are strict, and foundries are not willing to do so in this field.
There is also a misjudgment on the demand side. Before 2020, the automotive market was sluggish, and car manufacturers and Tier1 had very low expectations for chip demand, but with the recovery of the new energy vehicle market, the contradiction between supply and demand began to become prominent. According to IC Insights' forecast, global shipments of automotive chips will reach 52.4 billion units in 2021, an increase of nearly 30% year-on-year, compared with the downturn in previous years, which can be described as a big exceeding expectations.
The demand for consumer electronics chips has grown rapidly |, and the squeeze on automotive electronics production capacity is obvious
Since the spread of the epidemic, online applications such as remote office and online education have begun to become popular, consumer demand for IT products and infrastructure such as personal computers and servers has expanded significantly, and the growth of the consumer electronics and other chip markets has seized some of the automotive chip production capacity. According to a report released by McKinsey, applications such as 5G require a large number of RF chips (40-90nm processes) similar to the automotive chip process, which has squeezed out the production of automotive chips, making the production capacity of automotive chips that were already stretched more tight.
The | chip manufacturers have made serious light manufacturing, and excessive dependence on TSMC has exacerbated the shortage of chips
From the perspective of the category of missing cores, in the early days, it was only the shortage of chips for control systems such as ESP, VCU, and TCU, and with the fermentation of the epidemic and the speculation of the chip market, by the late period of the third quarter of 2021, even traditional components such as radios, on-board central control screens, and automotive lamps and lanterns began to lack cores. In recent years, chip manufacturers have begun to light manufacturing, especially AI chips, automotive MCUs, the vast majority of them have begun to choose the OEM model. The result is that these chips are heavily dependent on the production lines of foundries such as TSMC. Among them, the automotive MCUs produced by TSMC have occupied about 70% of the market share. Since the end of 2020, TSMC's focus on production has been computing chips. After the sharp rise in demand for automotive chips, it is difficult for manufacturers such as TSMC to achieve production conversion, and other foundries are difficult to cut into due to the certification of vehicle-grade chips, and the new production capacity is "far from the water is difficult to save the fire".
3 Trend: The tight supply and demand pattern will continue, and the market opportunities for domestic manufacturers will appear
In 2022, the industry is still plagued by "lack of core", and the problem of production reduction still exists
In 2022, the epidemic and geopolitical conflicts still exist, and the problem of insufficient production capacity of automotive chips has not been substantially alleviated, and the supply situation in the first quarter is still grim. According to Susquehanna Financial Group data, the average global chip delivery time in February 2022 was extended to more than half a year, setting a new high. With reference to 2019, the normal delivery period for chips is 6 to 9 weeks. In addition to the normal demand growth, car manufacturers and Tier1 have even seen problems such as "double ordering" in order to avoid the problem of misjudging demand in early 2021, making production capacity more tense. AFS expects the cumulative production reduction in the global automotive market to reach 767,700 units in 2022, accounting for about 7.5% of the cumulative global automobile production reduction last year.
Structural shortages will continue, and analog chips may become the focus of the core shortage in 2023
Since 2022, the previous shortage of chips has been more serious. In February 2022, the average delivery time of MCU was 35.7 weeks (250 days), more than 8 months, which was the most shortage of chips in the market; followed by power supply chips, the average delivery period also increased by 1.5 weeks from the previous month.
Automotive analog chips such as power chips and modems may be the new "shortage point". According to IHS Markit's analysis, after the 2021 MCUs, analog chips are likely to be a major constraint on automotive production over the next three years. In the field of analog IC, the process requirements are not high, mostly use the IDM model, but the cyclicality is more obvious, the willingness of manufacturers to invest in expansion is not high, the capital expenditure has been declining in the past few years, there is a shortage of hidden dangers, and the contradiction between supply and demand may break out in the follow-up.
Automakers and Tier1 are expected to be relatively optimistic, but production cuts are inevitable in the short term
Third-party agencies, automakers and Tier1 are relatively optimistic about the chip market, which will be alleviated by the end of 2022 at the latest, and small lack of cores will become the norm. At the beginning of 2022, the equipment department of the Ministry of Industry and Information Technology and the relevant personnel of the China Automobile Association said that the lack of cores will gradually ease in 2022; Renault CEO de Mayo said that the lack of cores will continue in 2022 and is expected to peak in the second quarter; Bosch president also said that chip shortages will ease as soon as July this year.
Judging from the actual operation situation, major automakers have responded to the "lack of cores" through production cuts, structural optimization and other means. In the first quarter of 2022, Ford Motor, Volkswagen, Toyota, Honda, Nissan and other car companies have plans to reduce production or stop production. Among them, Ford has temporarily suspended production or reduced production measures for 8 factories in the United States, Mexico and Canada; some car manufacturers such as Great Wall have adopted structural optimization measures and suspended the acceptance of orders for low-end models to ensure the supply of high-end models.
Foundries and chipmakers are expanding their production capacity, but the release will need to wait until 2023
Mainstream chip manufacturers have significantly expanded production, which is expected to improve the supply capacity in the medium and long term, and the short-term pressure is still difficult to alleviate. TSMC, Infineon, Intel, GF and other manufacturers have announced their own plans to expand production or allocate to automotive chip production capacity. However, due to the construction of on-board chip production capacity, the cycle to production and car is very long, and the current expanded production capacity can only be released after 2023. In the face of such a large increase in chip demand for new energy vehicles, the pressure on supply is still relatively large. In addition to chip manufacturers and foundries, automakers and Tier1 are also leading the increase in the production capacity of key semiconductors. Similar to Bosch and large automakers (Ford, etc.), they have begun to choose self-built production capacity, or cooperate with foundries to develop and produce automotive chips to solve the follow-up supply problem, but it also takes time. In addition, the release of production capacity also means the demand for more talents, which cannot be solved in a short period of time. (Source: Future Think Tank)
The trend | automotive chip supply chain will be reshaped, and chip factories will cooperate more closely with car manufacturers
After the lack of core "education", the car factory began to try to change the traditional supply chain cooperation model, not completely relying on the previous Tier1 to maintain the relationship with chip manufacturers, began to choose to seek direct cooperation with chip factories to ensure the supply of chips, and even some car manufacturers directly want to start chip investment and research and development plans. Since 2021, BMW, Ford, Stellantis NV and GM have all made proactive attempts to optimize the chip supply chain. We expect that in the future, more OEMs will choose to cooperate directly with chip manufacturers to jointly develop and design, manufacture and package chips to improve their control over the entire chip industry chain.
4 Investment analysis
With the acceleration of the "three modernizations" of automobiles, the demand for automotive chips has risen rapidly, but due to factors such as production capacity, supply chain disturbances and the spread of the epidemic, the supply supply in 2022 is still in a state of shortage, and the scope of core deficiency may be further expanded from the previous MCU to analog chips. From the perspective of time, it is expected to ease in the second half of 2022, but the tight supply situation will continue into 2023. In this context, domestic automakers have begun to seek a multi-supplier strategy, and domestic automotive chip manufacturers are also facing market opportunities and are expected to achieve point breakthroughs, including in-vehicle power semiconductors, MCUs, cockpits and autopilot SoCs.
Excerpts from the report:
(This article is for informational purposes only and does not represent any of our investment advice.) For usage information, see the original report. ）
Featured report source: [Future Think Tank].