The global automotive industry is pouring billions of dollars into SiC semiconductors, hoping that they could be key to transforming vehicle power systems. This shift is rapidly changing the supply chain at all levels, from components to modules.

In the previous piece “SiC vs. Silicon Debate: Will the Winner Take All?,” we explored SiC’s unique physical properties. Its ability to facilitate high-frequency fast charging, increase range, and reduce vehicle weight has made it increasingly popular in the market of electric vehicles (EVs).

Research from TrendForce shows that the main inverter has become the first area for a substantial penetration of SiC modules. In 2022, nearly 90% of all SiC usage in conventional vehicles was in main inverters. As demand grows for longer range and quicker charging times, we’re seeing a shift in vehicle voltage platforms from 400V to 800V. This evolution makes SiC a strategic focus for automotive OEMs, likely making it a standard component in main inverters in the future.

However, it is common for now that SiC power component suppliers fail to meet capacity and yield expectations – a challenge that directly affects car production schedules. This has led to a struggle for SiC capacity that is impacting the entire market segment.

Device Level: Burgeoning Strategic Alliances

Given the long-term scarcity of SiC components, leading OEMs and Tier 1 companies are vying to forge strategic partnerships or joint ventures with key SiC semiconductor suppliers, aiming to secure a steady supply of SiC.

In terms of technology, Planar SiC MOSFETs currently offer more mature reliability guarantees. However, the future appears to lie in Trench technology due to its cost and performance advantages.

Infineon and ROHM are leaders in this technology, while Planar manufacturers like STM, Wolfspeed, and On Semi are gradually transitioning to this new structure in their next-generation products. The pace at which customers embrace this new technology is a trend to watch closely.

Module Level: Highly-customized Solutions

When it comes to key main inverter component modules, more automakers prefer to define their own SiC modules – they prefer semiconductor suppliers to provide only the bare die, allowing chips from various suppliers to be compatible with their custom packaging modules for supply stability.

For instance, Tesla’s TPAK SiC MOSFET module as a model case for achieving high design flexibility. The module employs multi-tube parallelism, allowing different numbers of TPAKs to be paralleled in the same package based on the power level in the EV drive system. The bare dies for each TPAK can be purchased from different suppliers and allow cross-material platform use (Si IGBT, SiC MOSFET, GaN HEMT), establishing a diversified supply ecosystem.

China’s Deep Dive into SiC Module Design

In the vibrant Chinese market, automakers are accelerating the investment in SiC power modules, and are collaborating with domestic packaging factories and international IDMs to build technical barriers.

• Li Auto has collaborated with San’an Semiconductor to jointly establish a SiC power module packaging production line, expected to go into production in 2024. 
• NIO is developing its own motor inverters and has signed a long-term supply agreement with SiC device suppliers like ON Semi.
• Great Wall Motor, amidst its transformation, has also focused on SiC technology as a key strategy. Not only have they set up their own packaging production line, but they’ve also tied up with SiC substrate manufacturers by investing in Tongguang Semiconductor.

Clearly, the rising demand for SiC is redrawing the map of the value chain. We anticipate an increase in automakers and Tier 1 companies creating their unique SiC power modules tailored for 800-900V high-voltage platforms. This push will likely catalyze an influx of innovative product solutions by 2025, thereby unlocking significant market potential and ushering in a comprehensive era of EVs.

Tesla, the driving force behind the next-generation electric vehicle(EV) battery standards, has been vigorously promoting the 46800 cylindrical battery cell in recent years.

Being Tesla’s key collaborator, Panasonic had initially scheduled mass production of these batteries for April this year. However, in a recent announcement, they revealed that their production plans would be delayed by at least a year, with full-scale production not set to kick off until between April and September 2024.

This strategic pivot is aimed at optimizing performance, but what we care about is the implications it might hold for the EV supply chain – could this mean that the strong alliance between these two giants is beginning to waver? And if so, what sort of ripple effect could this have on the relevant market?

Tesla’s secret weapon in the EV price war

Given the capacity of 46800 battery cell is five times that of the 21700 battery, it means fewer cells are required to achieve the same total battery pack capacity.

For instance, a 75kWh-based Model 3 uses 4,416 units of the 21700 battery cells packed in the traditional way of Cell to Module (CTM), which assembles batteries into modules which are then encased into a battery pack and then fitted onto the vehicle’s chassis.

In contrast, a Model Y with the same battery capacity would need only 828 units of the 46800 battery cells, leading to a 14% saving on battery costs. Coupled with Tesla’s integrated chassis technology (CTC), where batteries are not assembled into modules but instead directly encapsulated under the cabin floor, this provides an ultimate, cost-effective solution for Tesla.

When Tesla first announced its 46800 battery plan in 2020, its battery capacity was pioneering among all batteries. Taking advantage of this favorable environment, Tesla has been both expanding their production and involving cylindrical battery manufacturers, like Panasonic, in their comprehensive plans.

Tesla has set up a 46800 battery production line at their Fremont factory in California. As of the end of 2022, their production capacity was about 4GWh, which can only support 50,000 to 60,000 75kWh EVs and is far from their sales volume.

In terms of a long-term strategy, Tesla not only aims to ramp up their production capacity but is also heavily reliant on external suppliers like Panasonic to support its ever-growing demand.

Hence, ever since the launch of Model S in 2012, Panasonic has remained Tesla’s primary supplier of power batteries. And thanks to Tesla’s booming sales, Panasonic has dominated the power battery market for quite a while.

Roadblocks for Tesla and Panasonic’s Alliance

So, what does Panasonic’s delay mean for its position in the market? In fact, as an important chess piece in Tesla’s battery market strategy, Panasonic has been under considerable pressure.

Externally, there’s the relentless price cuts from Tesla. In 2018, as Tesla’s sales skyrocketed, they started purchasing batteries from more suppliers, thereby indirectly pressuring Panasonic to lower prices.

In addition, the internal discord has also been shadowing the project. On one hand, the long-term supply to Tesla has not brought as impressive profit performance as anticipated for Panasonic’s battery business. On the other hand, sticking to Tesla’s technology route, Panasonic has missed a great deal of opportunities to partner with Japanese car makers due to its conservative investments in the mainstream hydrogen energy batteries, which has in turn stirred internal questioning.

Since 2020, both South LGES and CATL have become suppliers to Tesla, causing Panasonic’s market share to fall to third place globally. But even then, Panasonic’s many years of expertise in cylindrical batteries made it Tesla’s Top choice when deciding to manufacture the 46800 battery. This was widely seen as Panasonic’s best chance to regain its leading ground and to solidify long-term partnership with Tesla.

Is Panasonic about to miss out on its prime opportunity?

All in all, we believe that this delay could not only disrupt Tesla’s price war strategy but also make Panasonic miss the golden chance to secure its dominance in the new technology. With multiple battery manufacturers, such as CATL, LGES, and Eve Energy, announcing that they will start mass production of the 46800 battery in 2024 or 2025, Panasonic will face unprecedented competition.

As of Q1 2023, Panasonic has seen its market share fall to fourth place. Obviously, maintaining its industry leadership becomes more of a daunting task for the company in the race. Although they’ve announced plans to build at least two 46800 battery factories in North America, it won’t serve as a panacea for their problems.

Beyond overcoming technical hurdles and expediting mass production, Panasonic also has a mountain to climb in terms of diversifying its customer base, further lessening the risk of an over-reliance on Tesla. These are inevitably long-term challenges that Panasonic cannot sidestep.

Under the grand banner of China’s domestic substitution policy, the wave of locally produced chips is swiftly spreading to the realm of Power Management ICs (PMICs).

Over the past three years, the number of fundraisings for Chinese PMIC manufacturers has shot up. We’ve seen an increase from 18 rounds in 2020 and 19 rounds in 2021 to a whopping 24 rounds in 2022 – a substantial leap from the figures in 2018 and 2019.

Looking at the number of IPO last year, 23 Chinese automotive-grade chip companies went public, with another 25 poised to follow suit. Among these 48 automotive chip firms, 12 boast PMICs, making it the largest product sector in these investments.

New Energy Vehicles Fuel China’s PMIC Market

Both the data points signal a golden era for Chinese PMIC industry, with the new energy vehicles(NEV)emerging as a key driving force.

Compared to traditional vehicles with internal combustion engines, NEV requires a greater number of PMICs, like DC/DC converters, to manage voltage conversions. This, in turn, propels overall PMIC growth. From 2021, automotive PMICs have entered a phase of rapid growth. TrendForce forecasts that the scale of automotive PMICs will reach $7.65 billion by 2023, marking a year-on-year growth of 4.2%.

Government’s subsidy incentives and a booming domestic demand for NEV are the primary reasons for nudging the Chinese semiconductor industry to embrace PMICs more quickly. This trend aligns perfectly with the growth trajectory of China’s power semiconductors.

Chinese Manufacturers Plant Flags in Automotive PMICs

Over the past year, several domestic PMIC manufacturers, including SG Micro, Etek, Shanghai Belling, and Halo Micro, have rolled out automotive-grade PMICs. Some of these chips have even entered mass production and are being adopted by domestic vehicle bands.

Foundries are equally keen to seize the golden opportunity. For instance, GTA Semiconductor has successfully raised over 10 billion yuan in recent years. The company has earmarked a portion of the funds specifically for the R&D of automotive-grade PMIC.

However, the opportunities come with their fair share of challenges. New entrants must navigate stringent automotive certifications, ensure product resilience across extreme temperature ranges from -40°C to 125°C, guarantee a product lifespan exceeding ten years, and manage prolonged validation cycles. These demanding requirements significantly raise the entry barriers for newcomers.

On a global scale, international IDM giants like Infineon, NXP, TI, and Renesas are well entrenched in the PMIC sector, boasting a diverse range of products. In contrast, Chinese PMICs supply chain are just off the starting blocks of the race. To gain trust from customers, expand their product portfolio, and penetrate the global market, they are bound to confront a succession of hurdles, which will persistently scrutinise the enduring R&D capabilities and business strategies of each manufacturer.

Tesla, the world’s leading electric vehicle (EV) manufacturer, has announced its collaboration with BYD, a leading player in the EV and battery industry. The partnership involves Tesla incorporating BYD’s lithium iron phosphate (LFP) blade batteries into the rear-wheel-drive entry-level version of the Model Y, which will be produced at Tesla’s Berlin factory in Germany. Deliveries of this model are slated to commence in June 2023. Let’s delve into the significance of this collaboration from the perspectives of both Tesla and BYD.

Tesla’s Perspective

Tesla’s Berlin factory has thus far been responsible for manufacturing the premium variant of the Model Y, equipped with Panasonic’s 21700 lithium-ion batteries. In contrast, the entry-level version of the Model Y had been imported from Tesla’s Gigafactory in Shanghai, China, with CATL’s LFP batteries installed.

With this collaboration, Tesla will now produce the entry-level Model Y directly at its Berlin factory, integrating BYD’s LFP blade batteries with a capacity of 55 kWh. This battery configuration will offer an approximate range of 440 kilometers. Although this variant features a reduced capacity of 5 kWh compared to the CATL battery-equipped Model Y, the BYD LFP blade batteries boast improved energy density. This enhancement results in an increased range per kilowatt-hour, from 7.6 km/kWh to 8 km/kWh.

Additionally, the adoption of BYD’s blade batteries provides Tesla with cost advantages. The blade batteries employ cobalt- and nickel-free battery materials, which are more affordable. Consequently, Tesla stands to save approximately $750 in battery pack costs when considering a battery cost of $150 per kilowatt-hour. Moreover, the square-shaped design of the blade batteries enables tighter and more efficient packaging, leading to higher energy density. This design also facilitates Tesla’s integration of Cell to Chassis (CTC) technology, which reduces packaging material usage and overall costs.

Considering these factors, the decision to utilize BYD’s blade batteries aligns with the cost-effective preferences of the entry-level Model Y’s target consumer group while fulfilling Elon Musk’s commitment to cost control.

BYD’s Perspective

In 2022, BYD overtook Tesla as the world’s largest EV manufacturer, boasting sales of 1.86 million electric vehicles. As a result, BYD’s market share in battery assembly has steadily increased, owing to its self-supply capabilities. As of the first quarter of 2023, BYD stands as the second-largest global supplier of power batteries, with a market share of 16.2%, surpassed only by CATL’s 35%.

Despite BYD’s remarkable growth in the electric vehicle sector, its battery production capacity initially struggled to keep pace. This resulted in a period during which BYD could only fulfill its own demand and was unable to export batteries, impeding the growth of its battery business in terms of customer quantity.

Apart from its use in BYD’s own EVs and the recent collaboration with Tesla for the Model Y, BYD’s batteries primarily find application in Changan Ford vehicles. Furthermore, a staggering 98% of BYD’s electric vehicle sales currently originate from the domestic Chinese market. This high market concentration poses the dual risks of relying excessively on a single market and a single customer for battery sales.

BYD’s inclusion in Tesla’s supply chain with its blade batteries marks a significant step toward diversifying sales risks. Nevertheless, for BYD to maintain its position as the second-largest battery supplier in the future, the company will need to adopt a proactive and diversified market strategy, expanding its presence in the supply chains of various automakers.

(Photo credit: Tesla)

Onsemi, a semiconductor manufacturer, announced at the end of April that it had signed a Long-Term Supply Agreement for SiC power components with Zeekr, a subsidiary of Geely Auto Group. Geely Automotive will use Onsemi’s EliteSiC power components to optimize energy conversion efficiency in its electric drive system. This move signals Onsemi’s aggressive expansion in the automotive SiC market, catching up to leading manufacturers STMicroelectronics and Infineon.

In the SiC semiconductor market for electric vehicles, STMicroelectronics and Infineon have maintained their market leadership by entering the market early, while Wolfspeed and ROHM have gained traction through their vertical integration technology for SiC. On the other hand, Onsemi still lags behind in terms of market share for SiC power semiconductors, even though it acquired GT Advanced Technologies in 2021 and mastered the most difficult wafer growth and production equipment technology in SiC manufacturing. Before 2023, Onsemi was only used in small and medium-sized vehicle models such as NIO and Lucid.

However, Onsemi’s benefits begin to materialize in 2023, thanks to the industry maturity built by early players such as Infineon and STM, combined with Onsemi’s early deployment of SiC-related technology. Onsemi’s SiC product EliteSiC has obtained LTSA from Zeekr, BMW, Hyundai and Volkswagen in the form of discrete and modules. Its CEO, Hassane El-Khoury, has stated that the SiC business will generate $4 billion in revenue over the next three years compared to the total revenue for the 2022 SiC market of approximately $1.1 billion. These factors have made Onsemi the most talked-about semiconductor company in the SiC market this year.

However, the intense competition in the SiC market will test the endurance of resource input sustainability. The rapid growth in SiC demand over the past five years is mainly due to high battery costs and the development of energy density having reached its limit. Car manufacturers have switched to using SiC chips in their electronic components to increase driving range without increasing the number of batteries.

As a result, car manufacturers are aggressively pushing semiconductor companies to accelerate their research and development of SiC technology. This has resulted in a significant reduction in R&D time, but also an increase in R&D costs. Coupled with the impact of intense market competition on profits, the ability to sustain R&D resource input and overall profitability performance will be the key indicators of semiconductor companies’ competitiveness.

Onsemi has successfully improved its profitability performance by streamlining its product lines over the past few years, ranking at the top with a 49% gross margin, according to the financial reports of various semiconductor companies in 2022. This profitability performance allows Onsemi to meet car manufacturers’ cost requirements and secure orders, thereby achieving economies of scale in SiC product growth.

However, in terms of R&D costs as a percentage of revenue, Onsemi ranks last at 7%, compared to its main competitors Wolfspeed (26%), Infineon (13%), STM (12%), and ROHM (8%). With semiconductor companies investing more in technologies such as reducing on-resistance and improving yield rates, how to maintain a balance between profitability performance and resource expenditure while achieving revenue goals through intense market competition will be an important challenge for Onsemi after securing orders from car manufacturers.

(Source: Zeekr)