China is ramping up efforts to domesticate semiconductor production for electric vehicles (EVs). Historically, Chinese EVs relied heavily on semiconductors from the U.S., Europe, and Japan. However, Beijing’s aggressive promotion of homegrown chips and substantial investment funds have led to a swift increase in market share for local manufacturers.
On Tuesday, the Wall Street Journal (WSJ) reported that China aims to maintain its position as a global EV manufacturing powerhouse by equipping its vehicles with domestically produced semiconductors.
While traditional combustion engine vehicles require approximately 700 semiconductors, EVs need more than twice that amount. Gartner, a market research firm, estimates that the automotive semiconductor market now comprises about 15% of the total semiconductor market, up from 8% in 2020.
Most semiconductors in Chinese vehicles were sourced from U.S., Japanese, and European firms like Texas Instruments and Infineon. Chinese-made chips now account for roughly 15% of the market. Beijing has prioritized semiconductors for electronic devices and actively supports domestic production, exemplified by the $47 billion national semiconductor fund established in May.
China boasts the world’s largest EV market. As of November, nearly half of the 20 million vehicles sold in China were hybrid and battery-electric vehicles. The China Automobile Association recently advised domestic companies to avoid U.S.-made processors, citing reliability concerns. The Ministry of Industry and Information Technology has mandated major automakers to report their quarterly purchases of locally produced semiconductors.
Local manufacturers are increasingly favoring domestic semiconductor suppliers to ensure stable supply chains. Chinese EV makers, experiencing rapid growth, are reportedly seeking partnerships with local chip firms that offer quick turnaround times and customized solutions.
These developments coincide with escalating U.S. measures against China. Last week, Washington launched an investigation into the production of general-purpose semiconductors commonly used in the automotive and defense industries. The U.S. has repeatedly tightened semiconductor export controls to China, and Beijing has imposed restrictions on U.S. imports of gallium and germanium in retaliation.
China orchestrated 31 mergers and acquisitions in the semiconductor sector in 2024. Nearly half of these deals focused on semiconductor materials and analog chips. The Chinese government has designated semiconductors as a strategic core industry and is implementing various policies to bolster the domestic ecosystem. It aims to increase semiconductor self-sufficiency from 15.7% in 2019 to 70% by 2025.
Global automotive semiconductor manufacturers are expanding their production capabilities in China. Haviv Ilan, CEO of Texas Instruments, pointed out that if global decoupling is the direction the world is heading, China could manage its own production while allowing the rest of the world to do the same. In 2023, STMicroelectronics established a joint venture with a Chinese state-owned enterprise dedicated to producing automotive and industrial power chips. Additionally, Dutch-based NXP disclosed plans in November to localize processor production specifically for Chinese automakers.
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