Automotive Chip Market Analysis

Automotive Chip market (Global, 2023)

Introduction

The market for car chips is in a period of transition, owing to the rapid evolution of car technology and the growing complexity of car systems. The demand for high-performance chips is rising sharply, as cars become more and more networked, electric, and automated. It includes a wide range of applications, such as power management, entertainment systems, advanced driver assistance systems, and electric vehicle components, which are critical for increasing the functionality and safety of cars. The shift to electric mobility and the increasing importance of sustainability are driving innovation in the chip industry, which is striving to meet the demanding requirements of today's car applications. Meanwhile, the global supply chain and geopolitical developments are influencing production capacities and market access, making it crucial for market participants to understand these complexities. The car industry will continue to evolve, and understanding the complexities of the car chip market will be crucial for industry players who want to seize opportunities and meet the challenges of this rapidly changing environment.

PESTLE Analysis

Political

In 2023 the market for car chips is influenced by government policy, which aims to increase the production of domestic car chips. The U.S. government allocates a total of about $ 50 billion under the CHIPS act to promote the production of semiconductors, which includes car chips. This is done to reduce the dependence on foreign suppliers and to strengthen the supply chain, especially in view of the recent world shortages. Furthermore, import duties and export controls on the import and export of semiconductors in various countries will also have an effect on the political environment of the car chip market.

Economic

The automobile chip market is subject to the vagaries of the economy, including inflation and supply difficulties. In 2023, the average price of automobile chips had risen by about 15 percent compared to the previous year, largely because of increased demand and a short supply. Moreover, the world’s automobile industry was expected to produce around 80 million automobiles in 2023, which was expected to drive up the demand for automobile chips. This level of production represented a strong recovery from the post-pandemic slump, but it also pointed to the ongoing difficulties in meeting the demand for automobile chips in the face of the uncertainties of the economy.

Social

In the field of transportation, consumer preferences are moving toward electric vehicles and advanced driver assistance systems, which require more complex automotive chips. It is estimated that around 30 percent of new car sales in 2023 will be electric, up from 20 percent in 2022. This trend is driving the automobile industry to invest in more advanced semiconductors to meet the growing demand for features such as semi-autonomous driving and greater connectivity. Also, as public awareness of the environment grows, automobile companies are putting greater emphasis on the environment-friendliness of their chip production processes, which is in line with the wishes of consumers.

Technological

The market for automobile ICs is rapidly changing. In 2023, the industry will witness a boom in the development of 5nm and 7nm chips with higher performance and lower power consumption. In the meantime, the major manufacturers are investing heavily in R&D, and the likes of Intel and TSMC have earmarked over $20 billion to expand their production capacity. Artificial intelligence (AI) will also see increasing use in automobile ICs, with an estimated 40% of new chips to be used in the future incorporating AI to improve the performance and safety of vehicles.

Legal

In the field of automobile electrical devices the prevailing legal regulations are those relating to the manufacturing conditions and the standards of the environment. In the year 2023 the European Union has introduced a more stringent regulation of the use of dangerous substances in electrical devices, which affects the production of automobile semiconductors. The RoHS directive stipulates that a manufacturer must ensure that the products do not contain more than 0.1% of certain dangerous substances. In addition, the right to patent is an important factor in the protection of innovations in the field of chip design. It is estimated that in the year 2023 there were 1,500 patents in the field of automobile semiconductors.

Environmental

The automobile chip market is being increasingly influenced by the growing importance of the environment, particularly in terms of the sustainability of the manufacturing processes. By 2023, it is estimated that the production of semiconductors will account for around 2% of global greenhouse gas emissions. Many companies are responding to this by adopting a more sustainable approach to production, and by 2030 approximately one-quarter of the manufacturers of automobile chips have committed to being carbon-neutral. This includes investing in the use of renewable energy and reducing waste. Moreover, the growing popularity of electric vehicles is driving demand for chips that are more environmentally friendly, in line with the international trend to reduce greenhouse gas emissions.

Porter's Five Forces

Threat of New Entrants

The market for automobile electrics is characterized by high barriers to entry, requiring a large amount of capital for development and production. Also, established players benefit from economies of scale and strong brand loyalty, making it difficult for new entrants to take market share. But technological advances and the growing demand for electric vehicles could encourage new companies to enter the market.

Bargaining Power of Suppliers

The market for the car's electrics is characterized by a small number of suppliers who control the critical components and technologies. This concentration gives the suppliers a strong negotiating position and enables them to set the terms and prices. The complexity of chip production and the need for specialized materials gives the suppliers still more leverage over the car manufacturers.

Bargaining Power of Buyers

The automakers are big buyers with considerable buying power, but the uniqueness of the automobile chips and the shortage of silicon have somewhat weakened their bargaining power. The buyers are more and more dependent on the suppliers for timely delivery and quality, which limits their ability to negotiate. Competition, however, is expected to increase the bargaining power of the buyers.

Threat of Substitutes

The threat of substitutes is low in the automotive chip market, as there are no direct substitutes that can match the functionality and performance of specialized automotive chips. While technological advances may lead to new solutions, the unique requirements of the automobile will make it difficult for substitutes to emerge in the near future.

Competitive Rivalry

Competition in the market for automobile chips is keen. Several established players are fighting for market share. The rapid technological development and the increasing demand for ADAS and electric vehicles have intensified the competition. Companies are investing heavily in R&D to keep their products cutting edge.

SWOT Analysis

Strengths

• High demand for advanced driver-assistance systems (ADAS) and autonomous vehicles driving chip requirements.
• Technological advancements leading to more efficient and powerful automotive chips.
• Strong partnerships between automotive manufacturers and semiconductor companies.

Weaknesses

• Supply chain vulnerabilities highlighted by recent global chip shortages.
• High production costs associated with advanced semiconductor manufacturing.
• Limited number of suppliers leading to potential monopolistic practices.

Opportunities

• Growing electric vehicle (EV) market creating new demand for specialized chips.
• Increased investment in research and development for next-generation automotive technologies.
• Expansion into emerging markets with rising automotive production and consumption.

Threats

• Geopolitical tensions affecting global supply chains and trade policies.
• Rapid technological changes leading to obsolescence of existing chip designs.
• Intense competition from non-automotive sectors for semiconductor resources.

Summary

The automotive chip market in 2023 will be characterized by a high demand, driven by the technological development of vehicles, especially in ADAS and EVs. But there are also many challenges to the market, such as supply chain risks and high production costs. Companies need to deal with the geopolitical risks and the fierce competition from other industries to maintain their market positions.