Vehicle Electrification Underpins Automotive Semiconductor Demand
The automotive industry has been incessantly endeavouring to minimize its detrimental impact on the environment. With this objective, the industry has been unremittingly striving to sculpt mobility as a sustainable solution. As a result, auto manufacturers have been indulged in extensive integration of electronic components in vehicles, a move that has augmented electrifying powertrain to mitigate carbon footprint.
Semiconductors have earned a significant position in the automotive industry, which in turn is pushing the growth of in automotive semiconductor market.
Distinct features such as connected devices, autonomous driving, shared mobility, and electrification of powertrains are likely to fuel significant development in the automotive industry. Together, these advancements are not only disrupting the value chain but also impacting the key players of the automotive ecosystem.
The developments that are unfolding on technological fronts are raising the demand for electronic gadgets, which, in turn, is fuelling the semiconductor demand. The increasing electronic content in vehicles is likely to outpace the automotive industry's growth rate itself. This is likely to propel the demand for system on chips (SoC), preferably, semiconductors in the near future.
Dawn of Electric Mobility, Coupled with Noticeable Headways in Vehicle Safety and Comfort Technologies
Intensifying vehicle electrification coupled with burgeoning end use of electronic content in the new age vehicles, and connectivity are some of the aspects pegging faster growth of automotive semiconductor market. Regulations like the Clean Air Act, CAFÉ, while the Euro 6, BS 6 emission norms deployed are expected to aid the transition from internal combustion vehicles to electric vehicles.
Intensifying vehicle electrification coupled with the burgeoning end use of electronic content in the new age vehicles, and connectivity are some of the aspects pegging faster growth of the automotive semiconductor market. Regulations like the Clean Air Act, corporate average fuel economy (CAFE), while the Euro 6, BS 6 emission norms deployed are expected to aid the transition from internal combustion vehicles to electric vehicles.
Government initiatives and supportive schemes promoting electric vehicles, coupled with headways in fuel-saving technologies, involving semiconductor integration in such systems are expected to provide the necessary thrust for market growth. The rising drift of vehicle electrification is the primary factor bolstering market growth.
Stringent environmental legislations against mounting pollution levels are likely to compel automakers to build electrically accentuated drivetrains. Integration of semiconductors in such drivetrains would extenuate emissions from the engines and exhaust treatment systems. As a result, the rising deployment of electrically actuated systems in the vehicle would generate ample opportunities for semiconductors.
Rising accidents and fatalities owing to mounting vehicle density have raised concerns among the population worldwide. As a result, there has been a steady rise in the demand for safer vehicles. On account of this, advanced driver assist systems (ADAS) have been gaining momentum over the last couple of years.
ADAS penetration in vehicles has been growing nearly by 12-14% over the recent past. Increased integration of safety features like ADAS in vehicles has boosted the demand for semiconductors.
Semiconductors in the vehicles are turning out to be focal elements for automakers that entail them in providing sophisticated safety and comfort electronic systems. These systems aid automakers to differentiate their vehicles, thereby augmenting vehicle safety, efficiency, and performance.
Dominoes Are Falling for the Automotive Semiconductor Supply Disruption
As the pandemic progressed through 2020, industrial businesses of all types shook off the shock waves. This interrupted supply chains leading to severe business losses for the automakers. The loss is also seen as a result of plummeting automobile sales that are expected to revive only post normalization of the pandemic as consumer sentiments strengthen.
COVID-19 caused insurmountable disruption in production and supply chain. The pandemic has been catastrophic, causing severe impacts worldwide. This significantly affected capital and R&D investments. International transportation suffered a ban that affected the Just in Time strategies, which halted the production schedules leading to idling and even plan shutdown.
On the flip side, despite lockdowns and production shut globally, the pent-up demand for vehicles accelerated the momentum, relieving the automakers.
Vehicle sales that increased quickly shrunk the dealer inventories. Hence, the manufacturers geared up and loaded orders with larger portions of electronic components. This stressed the electronic component sectors due to the unprecedented surge in vehicle sales and production.
Despite few chips being in plenty, cars, trucks, and automakers faced increased lead times due to shortages of one or the other missing electronic component.
Micro-components in the ICE Vehicles and EVs to Dominate
In the last decade, automakers have heavily invested in research and development of cutting-edge technology to boost vehicle electrification. Demand surge in driver assist features is likely to ensure more semiconductors in the micro-components of passenger vehicles. Micro-components with built-in chips commonly known as ASIC are embedded for tailored end uses, for e.g. deploying airbags etc.
Rise in safety mandates and ground-breaking vehicle safety features is anticipated to drive the demand for semiconductor in modern vehicles.
Integration of the hybrid and electric drivetrains are likely to bring about the incorporation of electronic circuits in the foreseeable future. Both the hybrid and pure electric vehicles are embedded with significantly expensive semiconductors, which drives the semiconductor demand in EV segment. The shift to alternative propulsion is likely to continue in the foreseeable future.
Hike in the average semiconductor value has been one of the major impacts the COVID-19 has posed.
Asian Countries Spearheading the Demand Surge
Asian countries comprising of emerging nations like Japan, China and Korea are spearheading the market. Mounting electric vehicle production in Asian countries has been propelling semiconductor demand. Steady demand emanating from the bulging middle class in the region is likely to drive the auto market growth. The rising electronic content in the vehicles and higher vehicle production is attributing to higher market growth.
Government policies, promoting electric vehicles (EV) globally, are likely to form opportunistic grounds for the semiconductor industry. Tax benefits and subsidies in China and India shall aid the rising EV demand.
The U.S.-China trade war has led to fluctuations in the tariff rates. This escalated auto components prices imported from China by nearly 25%. The trade war is likely to create a negative impact on the automotive industry affecting trade by nearly 8-9%.
Stringent vehicle safety policies in the European countries coupled with apt infrastructure are characterizing the ADAS market growth. This is providing the necessary thrust for the semiconductors market to proliferate.
Market Being Capitalized by Strategic Agreements Between Semiconductor Manufacturers and Automotive OEMs
The competition rivalry in the automotive semiconductor market is probable to get stiff in the coming years as technology evolves. Tech-giants are corroborating with companies, universities and researchers to innovate in the field of autonomy. Hence, large manufacturers are directing their investments towards innovations to amplify opportunities in automotive electronics and its commercialization in ICE and electric vehicles.
Key players are relying on different strategies such as business expansion, preferably through organic and inorganic growth and new product developments. Business strategies related to R&D investments and joint ventures are being well adopted by the key players with the intent to grab market share. For the same, manufacturers are likely to enter strategic partnerships that shall enable them to acquire technology expertise and geographic expansion.
In January 2018, Audi AG amalgamated with ON Semiconductor, to nurture the latter’s innovations and incorporate its semiconductors in the former’s newer models, catering to relentlessly changing demands of the consumers.
ON Semiconductor was chosen by Mercedes EQ Formula E Team to build next-gen electric power for augmenting performance and efficiency. Another automotive titan, BMW AG united with semiconductor company Intel Corporation back in 2017, with an aim to deliver its newly built autonomous car BMW iNEXT.
Intel Corporation, ASE Technology Holding Co. Ltd. (ASX), NXP Semiconductors, Samsung Semiconductors, NVIDIA Corporation, Broadcom Inc. (AVGO), Texas Instruments Inc. (TXN), Taiwan Semiconductor Manufacturing Co. Ltd. (TSM), Analog Devices Inc., Toshiba Corporation, Infineon Technologies AG, Renesas Electronics Corporation, Robert Bosch GmbH, Qualcomm Inc. (QCOM), and Micron Technology Inc. (MU) are some of the major manufacturers that are steering the automotive semiconductor market.