With mobile phone semiconductor demand cooling, automotive chips are red-hot

Increased numbers of more-powerful chips will be required in the next wave of electrified and automated vehicles, and companies like Qualcomm are set to pounce.

Vehicle electrification and the increasing complexity of infotainment, advanced safety, and vehicle autonomy systems will propel the value of automotive semiconductors installed in vehicles from its 2020 level of $500 per car to $1,400 by 2028, according to an analysis by S&P Global Mobility.

This will result in a massive growth curve in the automotive semiconductors market - already seen with a 28% year-over-year growth in 2022 to $69 billion. The long-term forecast for growth from 2022-2029 is strongly positive, with continued double-digit market growth predicted.

Of note, the supply chain shortage is easing somewhat. Before the pandemic, the lead time from order to shipment of chips was three to four months; during the pandemic in 2001 and 2002, that wait grew to a year or longer. But with other industries - such as mobile phones and PCs - seeing cooling demand, automotive semiconductor demand is increasing. Some chip manufacturers are pivoting to address that need, although the types of chips for automotive-grade use vs. communications equipment often are not the same.

The demand for chips is also driven by the consolidation of electronics in cars, as domain controllers and central computers have been replacing some Electronics Control Units (ECU). It might seem that, with fewer ECUs, there would be less demand for semiconductors. But in reality, the more powerful domain controllers and central computers need many chips - and more powerful ones at that.

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Another profound change affects the design of the controllers. In the future, S&P Global Mobility forecasts less usage of ASICS or ASSP chips - custom chips specific for one single application. In other words, if a specific chip is missing, you don't have the flexibility to replace it with another chip. Future domain controllers will likely see more usage of standardized chips as well as codesigned chips.

To combat the chip shortage, OEMs have been looking at new ways to get chips. They have been working with distributors, brokers, and even the foundries to get chips directly. Might other OEMs follow Tesla's example and manufacture their chips? (Tesla has announced that the microcontrollers for their Next Gen Vehicles will be 100% designed in-house.) Some vertically integrated ones may - such as Toyota and Denso establishing Mirise in 2020 to make and buy semiconductors, while Hyundai has been exploring the design of its chips through its Mobis supplier subsidiary.

However, in-house chip design has not yet become a general trend across traditional OEMs - as full-line portfolios have a much broader variety of requirements for their vehicles compared to Tesla. Also, it is difficult to build semiconductor design expertise from scratch; a co-design model like the one adopted by GM with Qualcomm, Infineon, NXP, and Global Foundries to reduce the number of custom chips is a more likely trend.

Fast mover: Qualcomm

The automotive segment was traditionally only a small, but stable, part of the semiconductor industry. Now mobile-phone-chip companies like Qualcomm and Samsung have pivoted toward the automotive segment with the rise of electric, connected, and semi-autonomous cars. Other major semiconductor companies may follow suit, as last quarter's financials were down for most sectors apart from the automotive segment.

This may allow a company like Qualcomm to experience considerable market share gains. In 2022, the top 5 semiconductor suppliers (ranked by revenue) were Infineon, NXP, Renesas, STMicroelectronics, and Texas Instruments. Qualcomm came in at number 13. But we are expecting them to climb to the top rungs of the list within the next 10 years.

Ten years ago, Qualcomm was a bit player in automotive, with more than 95% of their business in mobile phones. With this pivot, Qualcomm has become a significant threat to historic semiconductor leaders like Texas Instruments. Qualcomm has been growing incredibly fast, with its automotive pipeline at more than UD$30 billion, and with projected auto-sector revenue by 2031 projected at more than $9 billion - larger than what No. 1 Infineon is making today.

China's Response to the US chip ban

In October last year, the United States banned Mainland Chinese companies from buying advanced chips and chipmaking equipment from the US. This was a huge blow to Mainland China's autonomous driving industry - an important part of its economic growth plan - as autonomous cars need advanced processors to be their brainpower.

However, we believe this to be a short-term setback that will accelerate the development of a domestic ecosystem for chips in cars in Mainland China. For example, during the Shanghai Auto Show this April, Horizon Robotics unveiled an alternative to Mobileeye's SoC applications for autonomous vehicles. (A system-on-chip or SoC is an integrated circuit that integrates the components of an electronic system). Black Sesame also showed off its new chipset, the C1200, which can be used as an autonomous vehicle's central computer. The upshot: We are already seeing some very strong domestic Chinese suppliers emerging to combat the US chip ban.

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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.