ELECTRIC-VEHICLE INDUSTRY FACES CHIP CHALLENGE
Hampered by US trade sanctions, China must catch up to improve its technology to power the next generation of smart cars, experts tell forum
China is still heavily reliant on the West, especially the United States, for high-end chips, which could pose a future challenge for the country’s booming electricvehicle industry, according to investment experts speaking at a venture capital conference.
“The chip front is challenging … [and] it will be the biggest challenge for the electric-vehicle industry,” Yuan Bing, co-founder of Rockets Capital, said on Tuesday in a panel at the China Private Equity Summit 2023 in Hong Kong.
“It is a hard uphill battle with a long way to go. We still have a lot of catching up to do.”
Rockets Capital is a private equity firm established by Chinese electric-vehicle start-up Xpeng.
China is currently unable to access advanced chips, such as those used in the latest smartphones and laptops, due to US trade sanctions.
Although the country has formed an army of producers that are able to churn out mature-node chips for use in present-day cars, more advanced chips will be needed in future to power the next generation of electric vehicles.
A petrol-powered car needs around 200 chips, whereas an electric vehicle on average needs more than 1,000.
China’s car chip output in 2023 is expected to reach US$17.2 billion, up by 55 per cent from 2018, according to a recent report by Askci Consulting Co.
Chinese carmakers have ramped up in-house production and third-party suppliers such as Horizon Robotics and Black Sesame have joined the fray.
Ian Zhu, a manager at Nio Capital, a private equity firm affiliated with rival electric-vehicle start-up Nio, said Chinese players had a key advantage over their Western competitors – they were closer to their customers.
“Many of the chips will be redesigned and a lot of Chinese players are present. They are closer to their customers and receiving the specifications [from carmakers],” Zhu said. “Plus, [car] chips are not the most sensitive chip area. They are not [currently] at the chief ban level.”
Yuan said that, in certain areas of electric-vehicle tech, China had already made progress with import substitution or even upgrades, such as the precision mapping used in lidar (light detection and ranging) applications.
Lidar sensors are seen as an essential component in developing fully autonomous driving, which allows the car to navigate heavy urban traffic without human intervention. But the high research and development costs involved are a challenge for many companies.
For example, Hesai Group, a Shanghai-based sensor maker for smart cars, recorded a 73 per cent increase in revenue for the three months to March 31, but its research and development costs jumped by 99 per cent year on year to 208.5 million yuan (HK$230.5 million), resulting in a net loss of 118.9 million yuan.
Yuan said China’s lidar sensor firms still needed time to scale up and make the industry profitable even though their technology had become world-leading.
“The [lidar sensor] companies we are investing in are lagging behind a little bit, but in a couple of years, they will be profitable and will lead the industry.”
Zhu also called on global investors to ease their concerns about state involvement in China’s crowded electric-vehicle industry, including subsidies, saying today’s market leaders were companies that were producing vehicles that met consumer needs.
It is a hard uphill battle with a long way to go. We still have a lot of catching up to do
YUAN BING, ROCKETS CAPITAL