In the wake of ongoing labor strikes affecting the U.S. automotive industry, major players are recalibrating their investment plans. Ford announced today that it will temporarily delay its $12 billion investment in electric vehicles, including the construction of its second battery factory in partnership with SK On.

Ford’s Chief Financial Officer, John Lawler, emphasized during the earnings conference that the company is not retreating from the electric vehicle sector. However, he and CEO Jim Farley acknowledge that as electric vehicle sales increase, consumers’ price elasticity decreases. Most consumers are reluctant to pay higher prices for electric vehicles, resulting in pricing pressures that compress profit margins and hinder the growth of Ford’s electric vehicle business.

Ford’s financial reports for the third quarter of 2023 revealed revenue of $1.8 billion in its electric vehicle division, with total sales of 48,000 pure electric vehicles, marking the best sales performance in over a year and a half. However, the company also reported record losses, highlighting the challenges of scaling production without achieving profitability.

In response to these challenges, Ford is shifting its electric vehicle strategy away from feature-centric development to prioritize cost efficiency. “Tesla actually gave us a huge gift with the laser focus on cost and scaling the Model Y,” said Ford CEO Jim Farley. With Tesla setting an industry standard, Ford’s forthcoming second and third-generation electric vehicles will build upon this foundation.

Under this cost-driven approach, Ford is reviewing its electric vehicle investment portfolio to better align with market demand. This includes scaling back production lines for certain models, suspending the joint battery factory project with SK On in Kentucky, and adjusting other electric vehicle-related investments totaling up to $12 billion.

(Image credit: Ford’s Facebook)

The US Department of Commerce issued new restrictions on AI chips on October 17, 2023, with a focus on controlling the export of chips to China, including NIVIDA’s A800, H800, L40S, and RTX4090, among others. Taiwanese manufacturers primarily serve cloud service providers and brand owners in North America, with relatively fewer shipments to Chinese servers. However, Chinese manufacturers, having already faced two chip restrictions imposed by the US, recognize the significance of AI chips in server applications and are expected to accelerate their in-house chip development processes.

TrendForce’s Insights:

1. Limited Impact on Taiwanese Manufacturers in Shipping AI Servers with H100 GPUs

Major Taiwanese server manufacturering companies, including Foxconn, Quanta, Inventec, GIGABYTE, and Wiwynn, provide AI servers equipped with H100 GPUs to cloud data centers and brand owners in Europe and the United States. These Taiwanese companies have established some AI server factories outside China, in countries such as the US, the Czech Republic, Mexico, Malaysia, and Thailand, focusing on producing L10 server units and L11 cabinets in proximity to end-users. This strategy aligns with the strategic needs of US cloud providers and brand owners for global server product deployment.

On the other hand, including MiTAC, Wistron, and Inventec, also provide server assembly services for Chinese brands such as Inspur and Lenovo. Although MiTAC has a significant share in assembling Inspur’s servers, it acquired Intel DSG (Data Center Solutions Group) business in July 2023. Therefore, the focus of AI servers remains on brand manufacturers using H100 GPUs, including Twitter, Dell, AWS, and European cloud service provider OVH. It is speculated that the production ratio of brand servers will be adjusted before the new restrictions are enforced.

Wistron is a major supplier for NVIDIA’s AI server modules, DGX A100, and HGX H100. Its primary shipments are to end-users in Europe and the United States. It is expected that there will be adjustments in the proportion of shipments to Chinese servers following the implementation of the restrictions.

Compal has fewer AI server orders compared to other Taiwanese manufacturers. It has not yet manifested any noticeable changes in Lenovo server assembly proportions. The full extent of the impact will only become more apparent after the enforcement of the ban.

During the transitional period before the implementation of the chip ban in the United States, the server supply chain can still adapt shipments based on local chip demand in China to address market impacts resulting from subsequent chip controls.

2. Chinese Manufacturers Focusing on Accelerating In-House Chip Development

Chinese cloud companies had already started developing their AI chips before the first U.S. chip restrictions in 2022. This included self-developed AI chips like Alibaba Cloud’s T-HEAD, a data center AI chip, and they expanded investments in areas such as DRAM, AI chips, and semiconductors with the aim of establishing a comprehensive IoT system from chips to the cloud.

Baidu Cloud, on the other hand, accelerated the development of its third-generation self-developed Kunlun chip, designed for cloud and edge computing, with plans for an early 2024 release.

Tencent introduced three self-developed chips in 2021, including an AI inference chip called Zixiao, used for Tencent’s meeting business; a video transcoding chip called Canghai, used in cloud gaming and live streaming applications; and a smart network card chip named Xuanling, applied in network storage and computing.

ByteDance made investments in cloud AI chips through its MooreThread initiative in 2022 for applications in AI servers. Huawei released the Ascend 900 chip in 2019 and is expected to introduce the Ascend 930B AI chip in the latter half of 2024. While this chip has the same computational power as the NVIDIA A100 chip, its performance still requires product validation, and it is speculated that it may not replace the current use of NVIDIA GPUs in Chinese AI servers.

Despite the acceleration of self-developed chip development among Chinese cloud server manufacturers, the high technological threshold, lengthy development cycles, and high costs associated with GPU development often delay the introduction of new server products. Therefore, Chinese cloud companies and brand manufacturers continue to purchase NVIDIA GPUs for the production of mid to high-end servers to align with their economic scale and production efficiency.

In response to the new U.S. restrictions, Chinese cloud companies have adopted short-term measures such as increasing imports of existing NVIDIA chips and building up stockpiles before the enforcement of the new restrictions. They are also focusing on medium to long-term strategies, including accelerating resource integration and shortening development timelines to expedite GPU chip manufacturing processes, thus reducing dependency on U.S. restrictions.

Volkswagen Group has reported its sales for the first three quarters of 2023, and the EV segment is showing remarkable growth, with a 45% increase compared to the same period last year. The group has sold 531,500 pure electric vehicles during this time, marking a significant step toward its transition to a zero-carbon, all-electric future.

The global share of EV sales for Volkswagen Group has grown to 7.9%, reaching 9% in the third quarter. If this trend continues, the annual share of pure electric vehicles is expected to fall within the range of 8% to 10% this year, with a stable 10% or more expected next year.

Europe remains the stronghold for Volkswagen’s electric vehicles, with a 61% growth compared to last year, selling a total of 341,000 EVs. In the US market, there has been a 74% growth, with 50,000 pure electric vehicles sold, while the Chinese market has seen a modest 4% growth, with sales totaling 117,000.

However, similar to Tesla, Volkswagen faces challenges with declining profitability despite increasing delivery numbers, primarily due to intense price competition. The operating profit has decreased by 7%, accumulating €16.2 billion, which means that despite an 8% growth in overall vehicle deliveries (regardless of the powertrain), with 6.8 million vehicles sold, profitability has remained nearly unchanged.

Volkswagen’s primary focus for the future is to continuously optimize cost control, emphasize its system adjustment plan, and develop cross-brand collaborative strategies to improve profitability margins.

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(Photo credit: Volkswagen)

In the wake of a semiconductor shortage, Chinese automakers have veered onto the path of self-developed chips over the past two years. Recently, Changan Automobile, in collaboration with the Chongqing High-Tech Industrial Development Zone and the Intelligent Manufacturing Industrial Research Institute, established Chongqing Xinlian Integrated Circuit Co., Ltd. This venture, boasting a considerable registered capital of 8.7 billion yuan, signifies a substantial investment from Chongqing’s state-owned entities and major automobile manufacturers. It is dedicated to advanced production of 12-inch large-scale integrated circuits.

Changan is not alone in this endeavor; companies like Geely, GAC, BAIC, BYD, and others have embarked on self-development plans or have chosen to enter the chip manufacturing domain through partnerships. Emerging forces in the automotive industry like XPeng, NIO, and Li Auto are also opting for self-developed chips.

The Rise of Self-Developed Chips

Tesla stands as the pioneering automaker in developing its self-driving chips. Industry insiders suggest that their decision was fueled by the inadequacy of chip suppliers like NVIDIA and the ample funds generated from Tesla’s surging sales. Their approach has been widely recognized by the market, prompting others to explore this direction.

In the realm of self-developed chips, different car manufacturers adopt diverse strategies. Companies like Tesla, XPeng, and NIO, renowned for their self-developed algorithms, focus on high-performance chips.

An industry source emphasized that car manufacturers prefer to stress full-stack self-development, but off-the-shelf chips cannot fully leverage the advantages of self-developed algorithms. Thus, powerful companies opt for customized chips to align with their proprietary algorithms. This underscores the need for automakers to possess robust capabilities in autonomous driving software and algorithms.

Notably, NIO has assembled a 300-member chip team, focusing on self-driving and LiDAR chips. XPeng’s chip team is developing high-computing power self-driving chips similar to Tesla’s FSD chip. Furthermore, Li Auto expanded its chip team and collaborated with Sanan Optoelectronics to establish a power semiconductor production line in Suzhou.

In contrast, traditional domestic auto manufacturers often commence their self-developed chip ventures with power semiconductors due to their higher onboard usage and relatively lower development complexity. Several carmakers have partnered with chip companies for mass production collaborations. Horizon Robotics, for instance, has signed mass production agreements with mainstream auto manufacturers like BYD, Great Wall, Li Auto, and Changan.

(Photo credit: Changan Automobile)

A senior government official in Malaysia has stated that the country will prioritize attracting investments in high-tech industries such as semiconductor and electric vehicles to solidify its status as a manufacturing hub in Southeast Asia within the global supply chain.

Sikh Shamsul Ibrahim, the Senior Executive Director of the Malaysian Investment Development Authority (MIDA), made this announcement during the Kuala Lumpur Economic Forum. He emphasized that in the face of ongoing trade wars and geopolitical tensions, Malaysia’s goal is to leverage the realignment and redistribution of global supply chains.

Ibrahim further stated that they are placing a strong emphasis on enhancing supply chain resilience and fostering closer collaborations with their trade partners. He also pointed out that they are actively exploring priority sectors with a particular focus on high-growth industries, including semiconductors, electric vehicles, and renewable energy.

In addition, Sikh Shamsul Ibrahim highlighted the government’s objective to introduce tiered corporate tax incentive measures, as per the 2024 budget plan, to attract investments in high-value and high-growth industries.

In September of this year, Malaysia unveiled a new industrial master plan that includes a $19.91 billion investment over seven years to advance its manufacturing capabilities. Key sectors in this initiative encompass electronics, chemicals, and electric vehicles, with the country also aiming to create 3.3 million new job opportunities.

(Image credit: Pixabay)