As reported by The Wall Street Journal today, Taiwan Semiconductor Manufacturing Company (TSMC) is poised to secure an additional one-year exemption from the United States. TSMC’s semiconductor facility in Nanjing, China, is expected to continue operations in the “foreseeable future” as long as significant technical upgrades are not undertaken.

U.S.’s Attitude towards Semiconductor Giants in Asia

The U.S. imposed a ban on chip exports to China in October of the previous year, restricting semiconductor equipment manufacturers using U.S. technology from exporting to China without obtaining a license.

On October 9th, the South Korean government revealed that both Samsung and SK Hynix have earned recognition as “Validated End-Users (VEUs)” by the U.S., granting them the ability to import specific U.S. chip manufacturing equipment into their existing Chinese facilities without further U.S. approval.

The status of TSMC’s designation as a “Certified End-User” remains undisclosed,  and the Taiwanese government has not made any public statements on this issue at this time.

South Korea’s Future Challenges after Secured U.S. Exemption

Over the preceding year, the South Korean government and related companies have been actively engaged in mediation with the U.S. government and will persist in their efforts during the extended one-year exemption. “In reality, we cannot evade political risks and geopolitical uncertainties,” stated Choi Sang-mook, Chief Secretary for Economic Affairs in the South Korean President’s Office.

Through back to September 22th, the U.S. Department of Commerce released the final regulations for the “Chip Act.” The rules indicate that subsidized chip manufacturers will enter into binding agreements with the U.S. Department of Commerce, limiting expansion and collaborative scientific research activities in countries including China. The restrictions for advanced processes and mature processes are set at 5% and 10%, respectively. This implies a severely restricted scope for expansion, and the future prospects for Samsung and SK Hynix’s continued growth in China remain uncertain.

Nevertheless, the U.S. decision to grant Samsung and SK Hynix an indefinite exemption bodes well for the semiconductor industry in China, the United States, South Korea, and the global semiconductor supply chain. As per Samsung’s statement, most of the uncertainties associated with its semiconductor production in China have been resolved. Meanwhile, SK Hynix underscores that this development bolsters the stability of the global semiconductor supply chain.

(Image: TSMC)

On September 20, 2023, France unveiled new incentives for purchasing electric vehicles, offering cash subsidies ranging from €5,000 to €7,000 for qualifying models. The subsidy criteria now take into account the carbon footprint during both the electric vehicle and battery manufacturing processes.

Given that China’s electric vehicle production relies more on coal-fired power generation, there’s a strong possibility that Chinese-made electric cars may not qualify for these subsidies. The French government plans to announce the list of eligible models in December 2023.

TrendForce’s point:
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1. China’s EDA Industry into Fast Development with Efforts of Downstream Industries, Capital and Policies Propel

Within the broader context of China’s push for semiconductor self-sufficiency in recent years, the domestic EDA (Electronic Design Automation) industry in China has undergone remarkable growth. This growth has been spurred by a collaborative effort involving the Chinese government (through policies and investment funds), the expansion of the IC design sector (the growth of IC design scale and investments upstream and downstream), and private offered funds.

EDA companies in China are in rapid growth, and finance companies reached its zenith in 2021, with funding amounts consistently setting new records year after year. In 2022, EDA financing amounted to approximately 8 billion RMB, with companies like Primarius Technologies, Empyrean Technology, and Semitronix making their debut on the stock market. Over the past three years, these companies have sustained a continuous uptrend in their revenues. All in all, with support from various quarters, China’s EDA industry is now on a fast track to development.

2. Point Tools Take Center Stage for Chinese EDA Companies

Nowadays, the supply of EDA tools is largely controlled by Synopsys, Cadence, and Siemens EDA, three major players with deep technical expertise across the entire spectrum of EDA tools. While Empyrean Technology, having entered the arena early, boasts a comprehensive suite of EDA tools for analog circuit design and FPD, the majority of other Chinese EDA firms are strategically focusing on specialized point tools in simulation and verification.

These companies win customer recognition and purchases before broadening their path to other tool categories. Another strategic avenue pursued by Chinese EDA companies is the exploration of innovative opportunities in emerging fields such as AI chips, setting them apart from their larger counterparts.

3. China’s EDA Industry Enters a Phase of Consolidation, Confronting Challenges of Inexperience and Political Risks

Over the past few years, the number of Chinese EDA companies and the scale of funding have surged dramatically. As they experience rapid growth, mergers and acquisitions (M&A) and investments have become indispensable means for Chinese EDA firms to fortify their positions. This trend is becoming increasingly conspicuous, with a total of 20 M&A and investment deals occurring within the Chinese EDA sectors over the past three years, comprising 2 in 2021, 15 in 2022, and 3 in the first half of 2023.

Primarius Technologies (with 9 deals), Empyrean Technology (with 3 deals), and Univesta (with 4 deals, one of which was unsuccessful) are among the firms with comparatively high M&A activity. Beyond M&A and investment, Chinese EDA companies are accelerating their collaborations to achieve complementary advantages, a trend that is expected to continue to gain momentum in the future.

China’s EDA companies do encounter certain challenges during the integration process: (1) They lack prior experience in M&A and must continually learn and experiment. (2) Given the global semiconductor industry’s shifting dynamics, they may encounter obstacles from local governments when pursuing overseas M&A and investments.

According to a recent report by itdcw, several Chinese new energy companies unveiled ambitious overseas expansion plans during the last week of September, with the highest investment commitment reaching almost a billion dollars.

This development comes as global demand for batteries skyrockets, driven by the rapid growth of the overseas new energy automotive and energy storage industries. Chinese companies in the new energy industry chain are strategically positioning themselves across the globe to better serve the expanding oversea markets.

Five Companies Announce Overseas Expansion in a Week

The hustle week could tracked back to a significant announcement from Ningbo Shanshan Co., LTD on September 27th. Their intention to establish a project company in Finland, aiming to invest in the construction of an integrated base capable of producing 100,000 tons of lithium-ion battery negative electrode materials annually. The total investment for this venture is not expected to exceed 1.28 billion euros.

On the very same day, a subsidiary of Lopal Technology signed a MOU with LG Energy Solution, Ltd. This agreement outlines their collaborative venture to operate a cathode material factory in Indonesia, further expanding the global footprint of Chinese battery companies.

XTC New Energy Materials also made a significant move on September 26th, announcing their plans to establish Joint Venture in France. This strategic collaboration with the French company Orano is set to build a production line with an annual output of 40,000 tons of ternary cathode materials, bolstering their presence in the European market.

Not to be outdone, CATL unveiled their investment plans in Indonesia on September 25th. Their vision includes the construction of Indonesia’s first project for the production of 30,000 tons of high-nickel power battery ternary precursor materials in the Indonesia Morowali Industrial Park, Central Sulawesi Province. The total investment for this endeavor is approximately 109.6 million RMB.

Additionally, South Korea’s LG Chem is gearing up with Huayou Cobalt on September 24th. Together, they are planning to establish an electric vehicle battery material factory in Morocco, slated to commence production in 2026. Their target is an annual output of 50,000 tons of lithium iron phosphate cathode materials.

Not Random: Calculated Choice to Overseas Moves for Expansion

China’s surplus battery production capacity and skyrocketing prices in recent times have left the battery industry chain market sluggish. This has prompted companies to explore overseas markets as a natural expansion strategy. The EU’s new battery regulations and the U.S. Inflation Reduction Act have set new standards and prerequisites for Chinese battery industry chain enterprises venturing abroad.

Europe’s appeal stems from its stringent EU environmental regulations, which have been pushing for the development of electric vehicles. Hungary’s strategic location has positioned it as a major export production hub for renowned automakers like Mercedes-Benz, BMW, and Audi. Its prime geographical location and excellent transportation links make it an ideal gateway to the entire European market.

Indonesia’s selection is attributed to its abundant resources, particularly nickel, of which it holds a quarter of the world’s reserves. Moreover, Indonesia ranks high in global cobalt production. This makes it an attractive destination for battery companies and upstream material enterprises, ensuring a stable supply of essential raw materials.

South Korea is appealing primarily due to its opportunities for collaboration with local companies. Battery material enterprises often find the initial capital requirements and other aspects of independent overseas expansion daunting. With recent international policy changes, Chinese counterparts are favoring collaborative approaches to establish a presence in South Korea.

However, it’s crucial to acknowledge that expanding abroad, while offering access to more overseas market resources, also amplifies risks and pressures borne by these enterprises. This strategic move will test their adaptability and resilience in navigating the complexities of global markets.

In summary, Chinese battery companies are aggressively expanding into overseas markets to meet the surging global demand for batteries, with Europe, Indonesia, and South Korea serving as key strategic locations. While the challenges are significant, these companies are poised to make a significant impact on the global battery industry.

Explore More

• Global Lithium Production Forecast to Reach 1.21 Million Tons LCE in 2023, US Lithium Producer ALB Leads with a 17% Market Share, Says TrendForce
• TrendForce: Global Li-ion Battery Industry Chain Market Supply and Demand Report in 2023

(Image and Source: Signing Ceremony between XTC and Orano – © Orano / Cyril Crespeau)

As the United States intensifies its chip embargo against China, the Chinese Academy of Engineering (CAE) has released an annual report for technological development. This report serves as a strategic guide to navigate the embargo and promote autonomous technological growth comprehensively.
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