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Despite Semiconductor Makers' Woes, EVs Boost Chip Demand

March 5, 2023
minute read

In spite of declining sales across several client categories, one industry is still seeing growth: the automotive industry.

More automation of all vehicles combined with rising sales of electric vehicles, which typically consume more semiconductors than their gas-powered counterparts, has kept chip manufacturers for automobiles busy. The market's long-term prospects seem promising, according to Tesla Inc. TSLA 3.61%

This past week, as Chief Executive Elon Musk laid out plans for his auto firm to ramp up to 20 million vehicles a year by 2030, from about 1.3 million in 2022, a green up-pointing triangle showed a rise.

On Wednesday, Tesla's supply-chain vice president Karn Budhiraj stated, "We're utilizing roughly 700,000 12-inch wafer equivalents," referring to the substance that makes up individual chips. When the corporation achieves its 20 million-car manufacturing goal, "We're going to need 8 million wafers," he continued. Moreover, Tesla said it was looking into methods to utilize fewer chips per vehicle and didn't see a problem with chip production capacity given how quickly that sector was growing.

According to chip executives, the quantity of chips entering automobiles has increased dramatically. According to officials, the average automobile will have 1,200 chips by 2021, which is more than double the amount in 2010.

Some companies, such as Dutch auto chipmaker NXP Semiconductors NXPI 1.29%

increase; green up pointing triangle Japan's Renesas Electronics Corp., RNECY 5.49%increase; green up pointing triangle NV, Germany's Infineon Technologies AG, IFNNY 1.64%increase; green up pointing triangle American Analog Devices Inc. A 0.90 percent gain in ADI; Texas Instruments Inc. and a green triangle pointing up. Recently, TXN 0.92%increase; green pointing triangle announced soaring revenues in their automobile businesses and provided optimistic outlooks for this year.

Technology Marvell Inc. CEO Matthew Murphy stated on Thursday that although the company's total top line is anticipated to decline, auto-related revenue in the current quarter should increase by over 30%. According to him, the company's chip sales for cars might rise from about $100 million now to $500 million in the upcoming years.

NXP's automotive-chip sales increased by 25% last year, and the firm expects a 15% increase in the first quarter of this year. Analysts predict that Renesas' automotive business would expand by roughly 40% this quarter. Analog Devices, which derives about a quarter of its revenue from the automotive sector, recorded a 29% increase in that category last year.

Vehicle production is becoming increasingly chip-demanding as manufacturers adopt increased automation to deal with manpower shortages and strive to lower costs, according to semiconductor executives.

The surge in vehicle chips contrasts with steep decreases in other areas for chip producers, whose products are used in devices that are directly linked to customer preferences. Americans have tightened their belts in recent months, fearful of increasing interest rates and persistently high inflation.

Intel Inc., INTC 0.76% gain; green up pointing triangle, the largest chip producer in the United States by revenue, posted a fourth-quarter loss and expects another this quarter, hampered by weak demand for the personal computers in which its chips are used. Advanced Micro Devices Inc. is likewise dealing with a bumpy PC market, with industrywide shipments anticipated to fall 12.5% this year, according to a recent Morgan Stanley forecast.

Qualcomm Inc., QCOM -0.15% decrease; red down-pointing triangle, known for its mobile-phone semiconductors, exemplifies how certain chip makers are suffering both sides of market dynamics. In the most recent fiscal quarter, phone revenue fell 18%, while automobile sales increased 58% to $456 million. Car chips account for around 5% of the company's total sales.

The durability of vehicle chips comes amid a historic drop in auto sales in the United States last year, which were the lowest in more than a decade. Sales have been hampered by supply-chain issues, including a shortage of chips required for a new generation of automobiles equipped with a slew of digitally upgraded features ranging from driver-assistance technology to automatic windshield wiper controls. This year, as buyers protest at high dealership pricing, worries about demand have arisen.

Because of growing automobile digitalization, even decreased vehicle sales aren't affecting automotive-chip demand, according to Kurt Sievers, CEO of NXP, one of the leading semiconductor suppliers to the auto industry. He believes that market share increases and the move to electric vehicles have been sufficient to offset economic difficulties and supply-chain concerns that have hampered automotive manufacturing.

"It's good when [vehicle manufacturing] increases, but we don't need it to increase to develop our automotive company," Mr. Sievers explained.

The epidemic served as a wake-up call for both semiconductor and auto CEOs about how intertwined their fortunes have become. Supply-chain interruptions caused a global semiconductor shortage, leaving some automakers with unfinished vehicles on the assembly line. Rivian Automotive Inc. ascribed its subdued sales expectation to chip supply concerns in its most recent earnings release.

But still, there are signs that these pressures are beginning to subside.

According to analysts at Susquehanna International Group LLP, average lead times for chips, including several crucial in automobile manufacture, were decreased by around four days in January compared to the previous month, indicating ease in limitations. Susquehanna said that lead times, which assess how long it takes to complete orders, have been falling for seven months in a row, despite the fact that the industry average lead time is still about six months.

According to Mr. Sievers of NXP, shortage issues were alleviated as production increased to match demand, but he did not anticipate the supply-demand imbalance to be resolved until later this year or early next year.

In general, chip producers are getting ready to increase capacity, both to meet rising automotive demand and to prepare for a resurgence in other industries like Computers and cell phones. The construction of an $11 billion chip facility by Texas Instruments and NXP in Lehi, Utah, respectively, was announced last month.

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