Intel CEO Pat Gelsinger gave a keynote speech at the 2024 COMPUTEX TAIPEI yesterday. According to a report from UDN, Gelsinger addressed that the U.S. must carefully find an appropriate balance in its chip ban against China to avoid pushing China to accelerate the development of its own chips. He stated that Intel’s technology holds a competitive advantage in China and will continue to export appropriate products to China.

Regarding the AI era, Gelsinger mentioned that all devices will eventually become AI devices, and all businesses will become AI businesses. He also introduced Intel’s foundry services as the first production system designed for the AI era. He stated that AI will be ubiquitous, its applications including AI PCs, end devices, enterprise products, and data centers.

At a press conference following the event, Gelsinger was asked about the development of Intel’s foundry services. He noted that everything is on track, with the goal of achieving this through a more flexible and balanced supply chain.

Regarding whether the U.S. chip export ban is prompting China to accelerate its chip development, Gelsinger said that the ban acts like a “magic line.” If the bans are too strict, it could force China to speed up the development of its own chips, so it is indeed crucial to carefully find the appropriate balance.

Per a report from tom’s hardware, Gelsinger agrees on strict restrictions on manufacturing technology, particularly emphasizing limitations on EUV lithography, which he believes will curb Chinese chipmakers’ capabilities to keep American companies competitive in China.

Notably, per Reuters citing sources, the U.S. government has reportedly revoked the licenses of Intel and Qualcomm to supply semiconductor chips used in laptops and handsets to Huawei. Some companies received notices on May 7th, and the revocation of the licenses took immediate effect.

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According to a report from Nikkei News, Japan will require companies in critical industries such as semiconductor and machine tools to take measures to prevent cross-border technology leaks in order to receive government assistance.

The planned technology transfer rules will reportedly apply to five sectors: semiconductors, advanced electronic components, batteries, aircraft components, and machine tools and industrial robots.

The Ministry of Economy, Trade, and Industry (METI) will issue revised guidance regarding these sectors, which are part of the 12 critical materials designated by Japan under the Economic Security Act of 2022. This move aims to maintain Japan’s international competitiveness in advanced technology fields such as chip manufacturing materials and carbon fiber used in aircraft.

Companies applying for subsidies will first need to declare the “core technologies” they need protection for. The protective clauses of the METI will include measures to minimize the number of personnel involved in critical materials and require relevant staff to sign contracts committing not to take sensitive technology with them when they leave the company.

For companies that share technology with business partners, all parties must sign confidentiality agreements. They must also restrict the number of personnel involved in critical technology and monitor these employees.

For enterprises seeking to manufacture overseas or expand production of critical technology, they must consult with the METI in advance. This regulation is also aimed at avoiding dependence on such technology imports.

If a company producing advanced semiconductors wishes to increase overseas production by 5% or more, it must notify the ministry. For traditional semiconductors, increasing overseas production by more than 10% will trigger this requirement. Beneficiaries who violate the protective clauses may be required to repay subsidies.

Besides Japan, the US Department of Commerce also released details regarding its CHIPS and Science Act, which stipulates that beneficiaries of the act will be restricted in their investment activities—for more advanced and mature processes—in China, North Korea, Iran, and Russia for the next ten years.

The scope of restrictions in this updated legislation will be far more extensive than the previous export ban, further reducing the willingness of multinational semiconductor companies to invest in China for the next decade.

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In October 2022, the U.S. imposed a new wave of chip controls on China, but TSMC ultimately received an extension of its exemption permit from the U.S. Department of Commerce for one year. This exemption is set to expire on May 31, potentially impacting the shipment schedule of the Nanjing plant.

TSMC stated that in October last year, the company applied for an indefinite exemption from the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce, and the process is still ongoing. As per a report from Commercial Times, industry sources have noted that if a new permit is not obtained, the Nanjing plant will need to apply for export permits on a case-by-case basis for certain items sourced from the U.S. starting June 1.

The U.S.-China trade war, which began in 2018, saw the U.S. impose stricter export controls in October 2022 on certain high-performance computing chips and semiconductor production items when exported to specific countries. While South Korean semiconductor companies like Samsung have received indefinite extension exemptions for semiconductor equipment controls in China, TSMC’s Nanjing subsidiary only secured a one-year exemption from the U.S. government, drawing significant attention.

Currently, TSMC operates 12-inch fabs in both Nanjing and Songjiang, Shanghai, along with 8-inch fabs, catering to local chip design companies. The most advanced process is at 16 nanometers. Over the past five years, TSMC’s revenue share from China has gradually declined from 20% in 2019 to 12% in 2023.

The latest news from TSMC indicates that it has obtained “Validated End User (VEU)” authorization, according to Commercial Times. However, according to TSMC’s annual report, there is no guarantee that the authorization obtained will not be terminated in the future.

TSMC emphasizes that while global trade barriers may increase the company’s production costs, its operations have not been significantly impacted so far. However, with the deepening of global trade tensions, related regulations, laws, and measures may still have negative effects on its business and operations. TSMC also reiterates its commitment to continue monitoring changes in trade policies and measures among major economies and taking corresponding measures based on subsequent developments.

Industry sources cited by the same report predict that the need for TSMC’s Nanjing plant to apply for export permits on a case-by-case basis in the future will inevitably increase operational procedures and extend the wafer shipment schedule in that region.

Additionally, on June 4th, TSMC’s shareholders will hold a comprehensive election for the board of directors. One of the independent directors, Ursula Burns, also serves as the Vice Chair of the Supply Chain Competitiveness Advisory Committee for the U.S. Department of Commerce. Orders from specific countries will undoubtedly receive close attention from the board of directors in the future.

Besides China, TSMC’s global expansion has also reached locations in the United States, Japan, and Germany, solidifying its goal of being a “long-term and trustworthy provider of technology and capacity.”

TSMC’s Kumamoto Plant in Japan held its opening ceremony in February, with mass production expected to begin in the fourth quarter. Meanwhile, as per a previous report from Reuters, TSMC will start construction of its first chip plant in Europe in Dresden, eastern Germany. The project is scheduled to commence in the fourth quarter of this year, with production expected to begin in 2027.

In contrast, the construction progress of its Arizona plant in the United States has been relatively slow. Due to the delay in the first phase’s production timeline from the end of 2024 to the first half of 2025, the production schedule for the second phase will also be postponed to start after 2027.

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(Photo credit: TSMC)

On May 14, 2024, the US administration announced that it would increase tariffs on Chinese new energy vehicles from 25% to 100%. Additionally, tariffs will be imposed on Chinese products such as batteries, chips, medical supplies, and critical mineral raw materials, affecting an estimated total value of USD 18 billion in Chinese imports.

The United States believes that China’s substantial state subsidies and excess production capacity allow Chinese products to penetrate the European and American markets at low costs.

TrendForce Insights:

1. Impact of Tariff Increase on Chinese Electric Car Imports in the US Market Is Minimal

According to sales statistics from the first quarter of 2023 to the first quarter of 2024 in the US electric car market, only Geely, among the Chinese electric car groups actively operating in the US market, holds a market share of merely 2%.

By the first quarter of 2024, this share had further declined to just 1%. In fact, Chinese automakers, anticipating such measures, have already shifted their focus away from the US market to regions such as Europe, Southeast Asia, Latin America, and Russia. Therefore, the current increase in tariffs is expected to have minimal impact on China’s new energy car industry.

2. Consumers Focus on Electric Car Prices, Not Nationality

The affordability of Chinese electric cars stems from China’s long-standing high level of self-sufficiency in the entire electric vehicle supply chain, from complete vehicles to components, especially in the battery sector, which accounts for the highest proportion of total vehicle costs.

Coupled with government subsidy policies aimed at attracting consumers to purchase electric cars and increasing the overall market size, this further enhances the cost advantage of various components.

Additionally, according to data released by Gallup in April 2024, only 36% of people with an annual income below USD 40,000 would seriously consider purchasing an electric car, while those with incomes between USD 40,000 and USD 100,000 or more have a purchase intention of 45-50%.

Therefore, the high cost of electric cars remains the primary reason why consumers are currently unwilling to switch to electric cars, rather than being a matter of the car’s “nationality.”

3. Is the Decoupling Strategy for Electric Vehicles from China a Cure or a Poison?

The US administration’s decision to increase tariffs can protect the US fossil fuel car industry in the short term. With consumers unable to access cheap Chinese electric cars, they may opt for US fossil fuel cars.

While this measure may prolong the life of the US automotive industry chain, it could hinder both US and global carbon reduction goals and reduce the international competitiveness of US car manufacturers in the electric vehicle sector. 

Stellantis CEO Carlos Tavares has stated that increasing tariffs will not truly protect his company, and the only option is to continue fighting. Therefore, while higher tariffs serve as a protective shield for the domestic automotive industry chain, car manufacturers ultimately still need to face the harsh reality of global market competition.

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U.S. Commerce Secretary Gina Raimondo recently stated that chips used by the Chinese company Huawei in their earlier Mate 60 Pro smartphone are not as advanced as those produced in the United States.

According to a report from Reuters, Huawei has been under trade restrictions since 2019, surprised the global industry and the U.S. government in August 2023 by unveiling a new smartphone featuring advanced chips. Despite Washington’s ongoing efforts to weaken China’s capabilities in advanced semiconductor research and production, the Huawei Mate 60 Pro is still regarded as a symbol of technological breakthrough in China.

Following the release of the chips used in the Mate 60 Pro, many believed that Gina Raimondo’s efforts to restrict Chinese semiconductors were futile. However, Gina Raimondo recently refuted this viewpoint. She pointed out that the new chips introduced by Huawei are not as capable and lag behind U.S. chips by several years in performance, indicating that U.S. export controls on China are effective.

The same report indicates that Washington has been striving for years to weaken China’s capabilities in advanced chip production and the manufacture of equipment required for these chips. The concern is that these chips could be used to enhance China’s military capabilities, with Huawei being a key player.

Therefore, after Huawei was placed on the U.S. government’s Entity List for export control in 2019, related U.S. suppliers struggled to obtain licenses to ship goods to Huawei. Notably, the sources cited in the report cited by Reuters on March 12th once stated that Intel’s competitor, AMD, had applied for a similar license to sell comparable chips in early 2021 but did not receive approval from the US Department of Commerce.

Nevertheless, Intel has been granted licenses worth billions of dollars to continue selling products to Huawei. Additionally, Huawei has also launched its first artificial intelligence notebook featuring Intel chips this month, leading to further controversies. Moreover, as per reports from The Register, Intel is reportedly preparing to follow in NVIDIA’s footsteps by developing “special edition” versions of its AI acceleration chips, Gaudi 3, for the Chinese market.

When asked if the White House’s stance on business with China is tough enough, Gina Raimondo emphasized the need for accountability from companies and everyone alike. She acknowledged that it wasn’t popular with suppliers when she told them they couldn’t sell semiconductor products to China, but ultimately she made that decision.

The emergence of the new generation of Huawei smartphones has also prompted the US administration to conduct dismantling reviews and gain insights into the technology details behind the chips, which are the most advanced semiconductors produced by China to date. However, few details about the related review have been disclosed.

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