From a “chip shortage” to a “price war”: Challenges and solutions in the automotive chip market

In recent years, a chip the size of a fingernail has become a focal point of competition in the global supply chain. From the “process speed race” of digital chips to the “secret war” of analog chips, this technological struggle is reshaping the industry landscape. Smart electric vehicles require 400-700 analog chips, which serve as the “translators” between the digital and physical worlds. However, with the rapid development of new energy vehicles, this seemingly “mature” field is fraught with danger. In May 2023, Texas Instruments, the global leader in analog chips, launched a price war, slashing the price of power management chips by half and drastically reducing the price of signal chain chips, even resorting to “negative gross profit” to clear the market.

At the same time, industry support policies further reduced the cost of its 12-inch wafer fabs by 40%. A “strangulation war” against the domestic chip industry has quietly begun.

Strategies of Giants and Market Fluctuations

The rise of Texas Instruments is a textbook example of “counter-cyclical operations.” It continuously lowered costs through its IDM model and process iterations, wielding its “price scythe” while its competitors were gasping for breath. In 2023, its price cuts reached 50%. A local chip salesperson admitted, “They can accurately calculate our cost line and then leverage economies of scale to price in line.”

Any complex technical system requires professional maintenance. Just as professional crane repair and maintenance is crucial to equipment lifespan in the industrial sector, the chip industry similarly requires full-lifecycle technical support, a common feature of high-end manufacturing.

A turning point came in 2020, when the “chip shortage” erupted, ushering in a brief golden window for domestic analog chips. At that time, the price of a voltage regulator soared from 2 yuan to 70 yuan. Automotive executives flocked to chip companies to grab chips, and domestic chips went from being “undervalued” to “prized guests.” However, in the second half of 2022, the market took a sharp turn for the worse. Weak end-user demand and a surge of companies entering the market led to a reversal of supply and demand. The price of the same voltage regulator plummeted to 0.5 yuan, a 99% drop. This roller coaster ride has exposed the shortcomings of the domestic chip industry: over-reliance on market fluctuations and a lack of technological moat. When price wars erupt, analog chip companies with smaller annual revenues face elimination. One executive at a listed company bluntly stated, “This isn’t competition, it’s a shakeout.” Currently, the 7nm and 5nm process technologies for digital chips are the industry’s focus, while market leaders are considering tightening control over chips using “mature processes” (90nm and above), targeting automotive analog chips. If these strategies are implemented, some automakers may face supply chain risks, while industry giants could seize the opportunity to further expand their market share. Ultimately, under the triple pressures of technological disparity, cost disadvantages, and external competition, the domestic automotive chip industry is experiencing a difficult period.

Demand Growth and Industry Synergy

Today, all new energy vehicle companies are experiencing a “chip frenzy.” Consider that smart electric vehicles require eight times more chips than traditional fuel vehicles. For example, the value of chips per vehicle for industry leaders is $2,875, while global annual sales of new energy vehicles have exceeded tens of millions. This vast market is fueling a surge in chip demand. More importantly, the pace of new energy vehicle development far outpaces that of traditional international giants. Some leading companies are upgrading their intelligent driving systems almost annually. This “agile demand” is precisely the Achilles’ heel of industry giants—their standardized, “global” approach makes it difficult to quickly respond to customized needs.

The chip shortage from 2020 to 2022 created a rift for local chip companies. Automakers were forced to relax their verification cycles, allowing local chips to be tested on vehicles. Some companies leveraged this opportunity to achieve automotive certification, increasing their market share from a relatively low level to 10%. Despite the onset of price wars, this window of opportunity allowed local companies to accumulate valuable automotive-grade experience. The industry is now prioritizing the “rectification of involuted competition,” while local governments are supporting chip companies through funds and industrial parks. More crucially, vertical collaboration between automakers and chip companies is deepening. Some automakers are developing their own IGBTs and lidar chips, and are collaborating with chip companies on intelligent driving SoCs. This “demand-driven” model is building a local ecosystem. In summary, market demand, policy support, and industry chain collaboration are opening the door to a breakthrough for the domestic chip industry.

Breakthrough Paths for Local Chip Companies

First, differentiated competition is key. Industry giants dominate in general-purpose chips, but lack customization capabilities. Local companies can focus on niche scenarios and use these scenarios to define their chips.

Second, collaborative process innovation is crucial. 70% of analog chip performance depends on process technology. Some companies are co-establishing laboratories with wafer fabs to jointly develop automotive-grade processes. This collaborative approach is also reflected in other areas, such as specialized crane wheel blocks, where optimized design improves equipment safety.

Finally, a closed “chip-algorithm-vehicle” ecosystem is necessary. Going it alone is difficult to compete with international giants. Deep integration can both guarantee shipments and drive technological optimization.

The Future of the Industry and Ecosystem Building

The future of the automotive chip industry lies in transforming market advantages into a voice in technical standards and the ecosystem. When different companies’ chip, computing, and sensor technologies synergize, a new industry ecosystem will gradually take shape. This requires rejecting involution and adhering to long-termism – the chip business is a “ten-year-long process of sharpening a sword” business, and only by patiently going through the cycle can we wait for a bright future.