Auto Outlook: Down But Not Out

For years, automotive has been an engine of growth in the semiconductor industry, although the market is expected to decline in 2020.

Several types of chips are used in automobiles, such as analog, memory, microcontrollers, processors and RF. But the automotive IC business still represents a small percentage of the overall semiconductor market. It pales in comparison to the smartphone chip market. However, automotive has been growing faster in terms of percentages for a number of years.

Recently, though, the automotive market appears to have stalled amid a slowdown in China. On top of that, the coronavirus (Covid-19) and other factors are impacting the market.

“2019 was a down year for the total automotive market in terms of unit sales,” said Jim Feldhan, president of Semico Research. “With the world economic uncertainty, automotive unit sales will likely be down again in 2020. China, the world’s largest market, is poised for another down year, in the minus 3%-5% range.”

Citing lackluster growth in China and elsewhere, sales of passenger cars and light trucks are expected to reach 93 million units in 2020, down 3.1% over 2019, according to Semico. Commercial vehicles are expected to reach 25.5 million in 2020, down 2.7% over last year, according to the firm.

“With total vehicle units down 3.1% in 2020, the increase usage of semiconductors per vehicle is still not enough to prop up automotive semiconductor sales,” Feldhan said. “Total semi auto revenues will be down 2.5% in 2020. This is driven by lower ASPs and a drop in the number of vehicles.”

Positive signs
Long term, though, the semiconductor industry still views automotive as a growth driver. Over the years, the chip content per car has been growing, especially for luxury brands. For conventional vehicles, the average value of semiconductor content is $330, according to a recent report from the U.S. International Trade Commission (ITC). Hybrid electric vehicles can contain up to 3,500 semiconductors with a total average value of $1,000, according to the ITC.

Plus, car makers are also incorporating more adaptive driver assistance systems (ADAS) in vehicles, which drives up the content. ADAS involves chips and sensors used to perform tasks such as collision warning, adaptive cruise control, lane departure alerts and emergency braking.

“Overall, automotive is still growing in general. If you look at automotive, we are continuing to see new opportunities for companies developing ICs for automotive,” said Walter Ng, vice president of business development at UMC.

There are several examples here. “As the applications for in-cabin and in-vehicle continue to increase, we are seeing a lot of companies that have existing products look to how they can leverage them for the growing automotive opportunity,” Ng said.

Wi-Fi is one example. Several device makers develop Wi-Fi chips for mobile and PC applications. The same devices are now being targeted for in-cabin automotive applications.

Device makers have also been fueled by the growth of hybrids and battery-electric vehicles (BEVs). China and other nations are aggressively pushing BEVs to consumers.

In total, unit sales of combined hybrid and BEVs are projected to reach 22.1 million in 2020, compared to 21.6 million in 2019, according to Semico.

Vendors remain bullish about electric vehicles despite the challenges in the market, namely a slowdown in China, trade wars and Covid-19.

“These are temporary issues,” said Meng Lee, director of product marketing at Veeco. “When you look at the big picture, it’s totally different. From a big picture standpoint, China and Europe are big in terms of environmental issues. China is pushing hard for EVs.”

All of these trends are well and good, but there are challenges, such as chip reliability and others. “(The) value and content in cars will go up like crazy over the next few years, especially with ADAS and electrification,” said Rich Rice, senior vice president of business development at ASE. “We’re starting to see decisions made not necessarily on the cheapest thing that’s available that connects all the dots and connects all the circuits, but something that is a little bit more reliable that can reduce failure and return rates.”

Negative signs
In the short- to mid-term, though, there are some ominous signs. “There are many automotive components that come from China for both electric as well as combustion engine vehicles. The reduction in manufacturing so far this year is likely to cause supply chain issues, hampering production lines,” Semico’s Feldhan said.

“One high profile case to cite is the Tesla plant in China, which is likely to experience production ramp delays due to Covid-19. In general, we are hearing about supply issues from many manufacturers as just-in-time inventory programs feel the squeeze,” Feldhan said.

Problems in the supply chain can be shown by looking at the drop of container shipments coming from China. Container volumes have fallen from 3,200 per day on average to 1,831 per day during one week in early March, according to Semico.

“Finally, auto sales are impacted by a negative economy,” Semico’s Feldhan said. “Back in January in the Semico IPI report, we state the world GDP would drop 0.5%. Now, only a month and a half later, as the virus spread continues, OECD says the virus could lower world GDP to 1.5%, half of what they were forecasting. China will be the hardest hit with a dip in GDP down to 4% for the first quarter 2020, the worst drop since the 2008 economic crisis. Potential job losses, threats of a recession and lower consumer sentiment could cause auto sales to suffer.”