China Carmakers To Develop Automotive Chips But Grapple With Quality Concerns

While the industry at large can see the wave in electric vehicles (EV) coming from China, it has not fully detached itself from the stigma of inferior quality in spite of its rapid technological advancements. How would China overcome their “good enough” reputation?

According to DIGITimes, the rising penetration of new energy vehicles (NEV) in China, China-based automakers, such as BYD, SAIC, Nio, and Li Auto, are developing automotive chips to strengthen resilience and reduce reliance on other suppliers. SAIC said it would invest RMB6 billion (US$830 million) to form a joint venture with partners, with SAIC holding a 99.8% stake in the JV, to engage in developing automotive chips and accelerate import substitution.

Following efforts for automotive chip localisation, including setting up funds, investing in integrated circuit (IC) design houses, and forming joint ventures (JV) with partners, SAIC targets to bring the proportion of locally-sourced chips to 10% in 2023, up from 7% in 2022, and plans to reach 30% by 2025. SAIC has also set a target to complete the vehicle validation of 100 domestically produced chips by the end of 2023.

In addition to SAIC, other companies such as BYD, Geely, NIO, and Li Auto are jumping into the bandwagon to develop their automotive chips in various ways, including investments. In March 2023 , SiEngine, co-funded by Geely’s subsidiary ECARX and Arm China, completed its third round of financing within a year.

Automakers have introduced SiEngine’s first chip, made on TSMC’s 7nm node. The company is developing its next-generation chip for smart cockpit, autonomous driving, and CPU for vehicles.

Zhejiang Jingnen Microelectronics, a start up incubated by Geely, completed its second round of financing in June 2023. In March, it announced the successful tape-out of its first auto-grade IGBT chip and plans to introduce its product into several cars in 2023. 

As competition intensifies in the Chinese new EV market, major automakers are increasing their investments in automotive chips to ensure supply security. Still, due to the high requirement for technology and capital for auto-grade MCU and analog chips, the local sourcing rate is relatively low in China.

Sources indicated that except for a few automaker giants, like Tesla, which can set up separate businesses for designing chips, most carmakers would have to acquire IC design capability either through investments or joint ventures. Besides, automakers also face challenges such as prolonged timelines for investment returns, chip standardisation, economies of scale, and cost issues.

Navigating Quality Issues

While titans such as Tesla have the means to start a design facility as mentioned prior, the others would have to content with joining forces with fellow players. That is the catalyst for quality issues. UK based media outlet, The Register reported China is getting concerned with its quality issues.

The article noted China wants its manufacturers to become more reliable, after finding that three key sectors – machinery, electronics, and automobiles – are not at levels that match global standards of excellence. It added the nation’s Ministry of Industry and Information Technology on 4 July 2023 published an interpretation and implementation guide for recently released “Opinions on Manufacturing Reliability Improvement.” 

The guide opens with the observation that Chinese manufacturing has made significant progress, but “there is still a gap between the reliability of my country’s manufacturing industry and the advanced level of foreign countries.”

“Advanced semiconductor materials, and automotive-grade automotive chips” are named as fields in which Chinese firms do not operate at levels matching the best the world has to offer. Some of the gap is caused by Chinese authorities and managers not being up to speed on how to monitor and manage quality processes.

Beijing wants those gaps bridged, so that China moves from middling sophistication to high-end work. To get there, China wants consideration of tech elements such as human-computer interaction, and the software used by manufacturers. Authorities always want products to be more reliable in all phases of their lifecycles – even unto eventual disposal.

The Ministry vows to run 100 demonstrations of how to improve reliability, and for at least 1,000 enterprises to have shown tangible results by 2025. A second phase of action, due to end in 2030, should see China fully adopt reliability standards across ten key products.

Administrators are also expected to be ready to enforce reliability standards by 2030. Electronics was selected as a target industry due to its vital role providing components to others, and also because Beijing feels it is sufficiently mature to respond to a call for improved reliability.

The automotive industry was named due to the importance of transport and the obvious negative impacts that flow from sub-optimal products. Machinery was nominated given its enormous and important industry that China thinks needs to reach an improved level of operation.

Aiming Beyond Good Enough

With ambitious goals set for improving reliability, China aims to make significant strides in enhancing the quality of its products by implementing reliability standards across key industries. The Ministry’s commitment to conducting demonstrations and driving tangible results is a promising step towards achieving their targets by 2025.

By extending the efforts until 2030, China intends to fully adopt reliability standards and enforce them, particularly in the electronics, automotive, and machinery sectors. Recognising the semiconductor’s need to catch up to global reliability standards may ease concerns in nations that have imposed sanctions on China, while other countries reliant on Chinese goods may contemplate the value they receive. Only time can tell if her mission to transcend “good enough” will be successful — though it is an obvious long shot now.

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