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.

YMTC has officially notified a 3~5% price increase for NAND Flash in mid-May. However, the initial impact of the price hike is expected to be felt in the enterprise market, and it may take some time to reflect in the consumer spot market.

The semiconductor industry is in the midst of a correction period aimed at tackling inventory challenges, and the memory sector is feeling the impact. Major players in global memory manufacturing, including Samsung, SK Hynix, Micron, and YMTC, have recently disclosed substantial cuts in CAPEX, ranging from 45~50% starting from 4Q22. The most recent financial reports from Micron and Samsung further underscore the industry’s downward trend.

TrendForce highlights that YMTC’s decision to raise prices comes amidst market conditions marked by substantial oversupply in the second quarter. Despite Samsung’s efforts to curtail production, the positive effects of this reduction are not anticipated to materialize until the latter part of the year. Consequently, experts predict a more substantial decline in contract prices for the second quarter of 2023 than initially expected.

The market situation in 2Q23 is still oversupplied, leading to further price declines. Since October of last year, the market transaction price for wafers has been lower than the supplier’s cash cost due to selling pressure. Some suppliers used the opportunity when Samsung announced production cuts to raise the wafer price, which is likely why YMTC made this announcement. TrendForce predicts that as demand gradually recovers in the second half of the year, wafer prices will become more resilient. (Photo credit: YMTC LinkedIn)

According to the weekly memory spot price trends released by TrendForce, apart from a slight increase in the price of DDR5 chips due to shortages, the spot prices of other memory products continue to decline. The detailed situation is as follows:

DRAM Spot Market

Spot prices of DDR5 chips have risen slightly due to the frequent occurrence of quality-related issues and their impact on the overall supply of DDR5 products. As for the rest of DRAM products, their spot prices have returned to the trend of incremental daily decline. The overall transaction volume has yet to pick up. Some traders appear to be more willing to stock up, but there are no signs of a price rebound because the demand outlook is uncertain and supply is plentiful. The average spot price of mainstream chips (i.e., DDR4 1Gx8 2666MT/s) fell by 1.62% from US$1.603 last week to US$1.577 this week.

NAND Flash Spot Market

Purchase sentiment for spots is rather torpid this week, where the overall sufficient volume in the market is not received with buyer inquiries and aggressive transactions, which explains how prices are maintained on a slow reduction on the whole, and wafer prices are slowly falling to the level of contract prices. 512Gb TLC wafer has dropped by 0.07% in spot prices this week, arriving at US$1.430.

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)

Over the past few years, the US Department of Commerce has imposed export restrictions and the CHIPS Act, causing political tensions to rise between China and the US. To mitigate geopolitical risks, customers are beginning to diversify the proportion of Chinese and non-Chinese suppliers, with Taiwanese foundries expected to benefit.

Industry sources claim that one of the world’s top three CMOS image sensor manufacturers, which previously produced CIS chips for laptops at Hua Hong, has reportedly shifted its orders to PSMC at the request of its customers. Another major power discrete manufacturer is also reportedly considering discussions with PSMC for related cooperation due to geopolitical concerns.

The subsidy regulations of the CHIPS Act prohibit subsidy recipients from transferring funds to related foreign entities, expanding semiconductor manufacturing capacity in “related countries” within 10 years, or engaging in any form of joint research or technology licensing with foreign entities involved in sensitive technology or products.

China’s advanced process capacity will only account for 1% in 2025

TrendForce predicts that the CHIPS Act may further reduce the willingness of multinational semiconductor companies to invest in China. Japan and the Netherlands have also joined the sanctions, which may hinder the expansion plans of both Chinese and multinational foundries in China. Chinese foundries are more active in expanding mature process capacity, with a projected growth of 27% from 2022~2025, but the advanced process has only 1% in 2025. However, the US is expected to have the highest growth rate in advanced processes (7nm and below), reaching 12% by 2025.

China’s memory production capacity will decline annually

SK hynix is the only one of the top three DRAM manufacturers with a production facility in China’s Wuxi. Due to factors such as oversupply and geopolitics, Wuxi’s DRAM production has decreased from 48% to 44%. The company’s new plant is expected to be located in Korea. Meanwhile, Samsung and Micron have no DRAM production in China, and their expansion plans will focus on Korea and the United States respectively. According to TrendForce, as DRAM production in Korea continues to rise, China’s global share of DRAM production capacity will gradually decline from 14% to 12% between 2023 and 2025.

Samsung and SK Hynix are reportedly unlikely to expand their legacy-process production lines for NAND flash memory as they approach manufacturing of 200-layer and higher products, making sub-128-layer processes uncompetitive. Instead, they are planning to establish new production facilities in South Korea or other regions. This move could restrict China’s NAND flash production capacity expansion and process upgrades, causing its global market share to drop from an estimated 31% to 18% between 2023 and 2025.

(Image credit: SMIC)