Tesla recently announced that its next-generation EV platform will reflect a 75% reduction in SiC components, though this reduction will be made without compromising vehicle performance and safety. This announcement is one of the very few specific details that Tesla has provided to the public about its plan for the development of its future vehicle models. Therefore, it has also trigger a variety of speculations across the automotive industry. According to TrendForce’s investigation, Tesla does not appear to have much confidence in the stability of the supply chain for SiC components. In the past few years, Tesla has been forced to initiate several recalls for the Model 3. One official reason given for the recalls was that the inverters of some of the Model 3 had power semiconductor components with minor manufacturing differences. As a result, these inverters could malfunction after a period of operation and would not able to perform the regular task of current control. This explanation directly points to a quality issue with the SiC components that Tesla has procured for its vehicles.

Additionally, a production capacity crunch for substrates has been the most significant challenge in the development of the market for SiC components. The major suppliers for SiC components and SiC substrates such as Wolfspeed, Infineon, and STMicroelectronics are currently adding a lot more production capacity. At the same time, Tesla is proceeding with the strategy of diversifying its suppliers for SiC components in order to minimize the risk of disruptions in the supply chain.

SiC components are certainly a key category of automotive electronic components that EV manufacturers like Tesla are going to consider when building their future vehicle models. Therefore, in the context of technological advancements, TrendForce believes that Tesla could adopt a hybrid SiC-Si IGBT package for the inverter of its next-generation EV platform. However, switching to such solution will entail disruptive innovations at the engineering and design levels, so this transition will raise many challenges. Also, regarding SiC MOSFETs that have been a critical part of today’s EVs, TrendForce anticipates that their mainstream structural design will transition from planar to trench. Currently, Infineon, ROHM, and BOSCH are the main suppliers for trench SiC MOSFETs.

On the whole, the hybrid SiC-Si IGBT package and trench SiC MOSFETs are technologies that can substantially reduce the total cost of SiC components for a vehicle. They also reduce the complexity and cost of an entire vehicle platform. These benefits, in turn, can help raise the penetration rate of SiC components in the low-end and midrange segments of the EV market. On the other hand, the widening adoption of SiC components could affect the market share of Si IGBTs.

In the market for automotive SiC components, Tesla has been acting as a major indicator of demand and product development trends. Therefore, the semiconductor industry has been paying close attention to this carmaker’s activities. Since Tesla has so far given very few details about its next-generation EV platform, TrendForce says more observations are needed to determine the reasons behind the reduction in SiC content.

Tesla has caused a lot of buzz in the global car market by cutting prices across several regional markets. The US, China, Europe, and Japan have all seen a significant drop in prices of Tesla vehicles, with magnitudes ranging from 6% to 20%. The US, in particular, has seen the largest cut in the average price of Tesla vehicles. The price of the RWD version of the Model Y has come down to USD 13,000, showing a reduction of 19.7%.

Tesla Aims to Increase Market Share and Put Pressure on Competitors

Tesla sold 1.313 million battery-electric vehicles (pure electric vehicles) in 2022 and retained its leadership in this niche segment of the car market. However, its market share for battery-electric vehicles has been shrinking from 24.5% in 2020 to 20% in 2021 and just 17% in 2022. This in part has to do with the rising number of entrants this market as well as the rising number of battery-electric models that are being offered by these competitors. Furthermore, China accounts for more than half of the global electric car market. Therefore, Tesla has found that its sales performance in China significantly affects its overall market share.

In the Chinese electric car market, sales efforts are concentrated on “economical” or affordable models that are priced within the range of CNY 150,000~200,000. Before Tesla initiated its recent price cuts, the starting price of the Model 3 had been at CNY 265,900, which is way above the mainstream price range.

However, the price of the Model 3 has been slashed by 13.5%, with the starting price now arriving at CNY 229,900. Since the price difference between the Model 3 and the competing economical models has shrunk to 15%, Chinese consumers that are mostly residing within the CNY 150,000~200,000 range could be much more receptive to Tesla’s messaging. Also, many Chinese carmakers have lately raised prices on their electric models because of high cost pressure. Tesla is thus expected to benefit by taking the opposite approach for pricing.

Turning to the US, the biggest benefit that Tesla has touted for this round of price slashing is the eligibility of its vehicles in obtaining a tax credit of up to USD 7,500. The Inflation Reduction Act of 2022 contains a provision that subsidizes the purchasing of a new electric car with a tax credit. Electric SUV or vans that are priced no higher than USD 80,000 and other types of electric vehicles that are priced no higher than USD 55,000 are eligible. In the case of Tesla’s Model Y, the version with three rows of seats (i.e., a total of seven seats) can apply for the tax credit as an electric SUV, whereas the version with two rows of seats (i.e., a total of five seats) can apply for the same benefit as one of the other types of electric vehicles.

For consumers in the US, the price of the Long Range version of the Model Y in 2023 is now 31.1% lower than it was in 2022 because of the price cut and the tax credit. Besides turning consumers’ heads, Tesla is also putting a lot of pressure on its competitors with this undercutting strategy. After all, Tesla’s vehicle models tend to serve as the base standard for carmakers’ electrified offerings.

Tesla Has a Firm Grasp on Fluctuations in Prices of Key Components, Thereby Making Cost Sensitivity a Competitive Advantage

In addition to discussing the effects of Tesla’s price cuts on itself and competitors, and other important issue that needs to be addressed is why Tesla can lower prices when other carmakers are compelled to raise them. To answer this question, we first turn to Tesla’s profit margin. Compared with its competitors, Tesla has a larger room for profit. Therefore, it can lower prices in exchange for more vehicle sales and market share.

This leads to the question as to how Tesla has attained such a large profit margin. The answer is that Tesla is excelled at managing its cost structure and supply chain. With respect to supply chain management, Tesla takes a different approach and has gotten involved more deeply than do other carmakers. For instance, Tesla directly sources components and do not rely on Tier-1 suppliers for system integration.

By contrast, traditional carmakers assemble vehicles with the finished parts provided by Tier-1 suppliers. From Tesla’s perspective, directly sourcing components and doing its own system integration offer some notable advantages. First, this approach facilitates the adoption of the latest technologies at the component level. Second, Tesla is much more aware of costs and also exerts a greater control over them. On the whole, Tesla has a better sense of the price fluctuations in the upstream than do its competitors.

The degree of Tesla involvement in its supply chain is also reflected in its activities in the global lithium market. The soaring demand and the Russia-Ukraine military conflict caused lithium prices to rise rapidly during the 2021~2022 period. Carmakers now recognize that the only effective way to secure the supply of raw materials and control the costs of these materials is to manage the upstream.

However, Tesla is not simply securing lithium supply contracts. It is also thinking about getting involved in ore mining and metal refining. Tesla’s activities in recent years have led to a capacity crunch in the market for mining and processing lithium ores. Since lithium is incorporated into power batteries through multiple phases of additional processing, carmakers tend to suffer the most when it comes to lack of price transparency.

（Image credit: Tesla LinkedIn）

Due to persistent production constraints in 2H22, TrendForce estimates that global car sales will reach 81.1 million units for 2022, showing either a mostly flat growth or small decline from 2021. Regarding 2023, the shortage of automotive semiconductor components will ease in the first half of the year, and carmakers will be ramping up production in order to reduce the pile of backlogged orders. However, the global economic environment is expected to remain challenging, so global car sales for that year are now forecasted to increase marginally by 3.7% YoY to 84.2 million units. On the whole, car production is not expected to return to the pre-pandemic level before 2025.

NEV Sales Will Rise to 14.2 Million Units for 2023

Looking at the entire global electric car market, vehicle sales are projected to grow by 43% YoY to 13.6 million units for 2022. Sales of new energy vehicles (NEVs) are projected to rise by 55% YoY to 10.1 million units for 2022 and will then climb to 19.4 million units for 2023. NEVs as a category does not include hybrid electric vehicles (HEVs) that still have an internal combustion engine. The trend of vehicle electrification continues across many regional markets. However, countries have different policies for supporting electric cars because they vary with respect to the progress made in the development of electric cars and related infrastructure. China and some European countries have already enter the phase where subsidy support for purchasing an electric car are being gradually reduced or eliminated. Conversely, the US and other emerging markets are expanding subsidy support.

Safety Functions Required Under EU’s New General Safety Regulation Will Become Mandatory in 2024 and 2026

To ensure safe operation for new types of vehicles that are entering the European market, the New General Safety Regulation (EU) 2019/2144 finally came into force this July. This regulatory framework mandates that all on-road vehicles will conform to a set of new specification requirements and enhanced safety standards. The application of the rules under the regulatory framework will be implemented over successive phases. Many advanced safety functions will be made mandatory in 2024 and 2026. This, in turn, will help generate the demand for automotive cameras (located inside and outside of a vehicle), sensors (e.g., LiDAR), networking components, and data recording solutions. All in all, the New General Safety Regulation is worth the attention of suppliers for automotive technologies. The rules under this framework also serve as a useful reference for other countries that are developing similar policies and laws.

Commercialization of Autonomous Vehicles Is Growing in Importance

Investments in the development of autonomous vehicles can only be sustained if cases of their commercialization start to appear. Hence, robotaxi companies are searching for feasible ways to commercialize their services and create a viable business model. Chinese robotaxi companies, for example, are enhancing the controllability of the traffic environment, reducing the unit cost of vehicles, and hooking up with ride-hailing platforms. TrendForce believes Mainland China will continue to be the fastest-growing regional market for robotaxi services in 2023.

（Image credit: Tesla Linkedin）

TrendForce’s latest research finds that global sales of new energy vehicles (NEVs), which encompass battery-electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and fuel-cell vehicles (FCVs), rose by 70% YoY to 2.87 million units for 3Q22. Of the quarterly total, BEV sales accounted for 2.147 million units and registered a YoY growth of 75%, whereas PHEV sales accounted for 714,000 units and registered a YoY growth of 57%.

Tesla placed at the first place in 3Q22 BEV market, BYD is the biggest threat

In the global ranking of BEV brands by vehicle sales for 3Q22, Tesla took first place with 344,000 units. While Tesla managed to maintain its market share at 16%, its lead over second-placed BYD in sales figure had narrowed further. BYD sold 259,000 BEVs in 3Q22, posting a massive YoY growth of 182%. It is also worth noting that the gap between Tesla and BYD in BEV sales has been smaller than 100,000 units for two quarters straight. SGMW and Volkswagen respectively stayed at third and fourth in the ranking, showing no change from the previous quarter. As for fifth to 10th, TrendForce especially points out that these places were all taken by Chinese brands. Looking at the global top 10 BEV brands for 3Q22, MG Motor (that has been acquired by SAIC Motor) and Geometry entered this group for the first time mainly thanks to the robust demand from China. Conversely, Hyundai, Kia, and XPeng Motors were pushed out of the top 10. XPeng stated that the deliveries of its new electric SUV G9 would ramp up this October. Whether XPeng will remain in the group of top 10 for 2022 depends on its performance in the fourth quarter.

Huawei’s big plan in the automotive market: the rise of Chinese brand “AITO”

Turning to the global ranking of PHEV brands by vehicle sales for 3Q22, BYD was at the top with 279,000 units and held a market share of 39.1%. As for other PHEV brands, they still were unable to raise their market shares above 10% even though they posted a QoQ increase in vehicle sales. Looking at the two German luxury car brands that are involved in the PHEV segment, Mercedes-Benz rose to second place in the ranking because of a QoQ gain for vehicle sales in both the home market and China. BMW saw falling sales for its PHEVs in Europe, so it posted a decline in units and slipped down in the the ranking. Chinese brand AITO entered the group of the global top 10 PHEV brands for the first time in 3Q22 and was immediately placed fifth. AITO is a brand under Seres and is in close cooperation with Huawei, and its vehicle models feature many technologies from Huawei as well. Going forward, the market performances of AITO’s vehicles will actually be an important indicator of Huawei’s progress in the development of an automotive business.

Moving into 4Q22, TrendForce believes that autumn releases of new vehicle models and year-end promotional activities will be the main drivers of car sales worldwide. Consumers have been waiting for new vehicle models or new generations of the existing vehicle models. This is one of the reasons why some carmakers saw declining vehicle sales in 3Q22. Therefore, these same carmakers could still get a boost in annual vehicle sales from their performances in the fourth quarter. As for the Chinese NEV market, it will stay fairly hot in 4Q22 as car brands operating there continue to provide incentives for vehicle purchases. Furthermore, Chinese consumers still want to take advantage of their government’s NEV subsidy program before its termination.

Foxconn (Hong Hai Precision Industry) and Saudi Arabia’s Public Investment Fund (PIF) have agreed to jointly establish an electric vehicle (EV) brand named Ceer. PIF is Saudi Arabia’s sovereign wealth fund, and Ceer will operate as a joint venture of the two parties. As the country’s first EV brand, Ceer will target not only the home market but also the wider regional markets of the Middle East and North Africa.

Saudi Arabia represents largest car market in the Middle East. The country’s new car sales totaled 580,000 vehicle units for 2021. This year, however, has seen a decline with the figure for the first three quarters coming to 290,000. Until now, Saudi Arabia has no home-grown car brand, and there is no carmaker indigenous to the Middle East. Presently, Toyota and Hyundai are the two main automotive groups operating in Saudi Arabia. The former’s and latter’s market shares in the country come to 34% and 18% respectively. Also, since Saudi Arabia is one of the world’s major oil producers and has kept gas prices low for its citizens, the conditions of its car market give an absolute advantage to vehicles powered by fossil fuels. Up to recently, Saudis have had no real incentives to invest in the development of electric cars and the build-out of the supporting infrastructure. In terms of “green” offerings, the Saudi car market so far has only received hybrid electric vehicles (HEVs) from a few automotive brands (i.e., Toyota, Lexus, and Hyundai). Among countries in the Middle East, Israel is currently the leader with respect to EV availability.

Even though Saudi Arabia continues to build its wealth primarily through the exportation oil, it is now driven by government policies and the momentum of reform to develop a domestic EV industry. For instance, the Saudi government is promoting electrification for at least 30% of the vehicles operating in the country’s capital Riyadh by 2030. However, this target is not mandatory. Turning to the creation of a home-grown EV brand, this joint venture with Foxconn is also among a series of actions taken by the Saudi government to reduce carbon emissions, adopt green energy, and reform the country’s economy. More measures need to be implemented to support the growth of a domestic EV industry. After all, the Saudi Energy Ministry just completed the regulatory framework for EV charging stations this August.

Among EV brands and startups, the most noticeable ones tend to come from the US and China because these two countries are the world’s major car markets and possess enormous domestic demand. On the other hand, opportunities are also brewing for new entrants in the emerging markets that are promoting vehicle electrification. The UAE, for example, has a local EV startup named Al Damani that begun small-scale production this June. TOGG, which is another newly formed company, commenced production on Turkey’s first EV this October.

Commenting on the formation of Ceer, TrendForce said it is very difficult for EV startups to grow their businesses especially if they are operating in countries without an existing automotive industry. Usually, these new companies will have to poach talents from the more established automotive companies and obtain licenses for certain key technologies. Ultimately, they will have to draw enough support from the automotive supply chain in order to have a chance to push their vehicles to the mass production stage. Additionally, while dealing with the complexity of vehicle assembly, startups will have to quickly scale up production in order to control their costs. All of these challenges have to be overcome by rising EV manufacturers that are located in emerging markets.