Automakers are betting on engine cars again. Is it the death note for the auto-chip industry?
“The electric story has failed,” the Belgian newspaper Het Laatste Nieuws headlined on July 24. The reason for the article is the changed attitude of car manufacturers toward electric cars. Disappointing sales figures for electric cars drive automakers back to well-known engine vehicles. That is not an overreaction, as actual sales figures turn out to be 45 percent lower than what was predicted. Less user comfort and the significantly higher purchase price scare potential customers away.
Bankruptcy of BelGaN is not a sign
About a week later, the Belgian chip factory BelGaN filed for bankruptcy. The factory produced semiconductors for the automotive industry on an industrial scale. The only chip factory in this field in Belgium. Is this the first casualty in a larger story that will strike the auto chip industry? Initially, it is important to outline that BelGaN’s story is a bit more complex and not a direct link between declining sales numbers in electric car sales and the plant’s closure.
In 2022, BelGaN’s governance changed as the chip factory of US-based Onsemi was acquired by the young Belgian company BelGaN. The company dared to make a risky change, which now turned out badly. To boost chip production for the automotive industry, the plan was to work with the material galium nitride (GaN). This deviated from production with silicon, but the move seemed logical given GaN is a better conductor of electricity.
However, the production line at the chip factory was not equipped for this change in direction. Money and time were needed to get the production line right. The young company did, however, just manage to raise money for an acquisition which does not make the investment interesting for investors. BelGaN apparently misjudged that: “To finance the significant investments associated with that transition process, after the initial investment, the shareholders started looking for additional investments. Several avenues were pursued in the process, unfortunately without success. As a result, the company has been forced to put the books down.”
Healthy tension is allowed
We would not argue either that the automotive chip industry should be completely reassured after this remarkable story. A look at Dutch NXP‘s most recent quarterly figures shows why. The figures for the automotive segment were disappointing, down seven percent from a year earlier. This is not just any chip company but one of the main forces for the global automotive chip industry. NXP shares that title with the two European players, STMicroelectronics (also from the Netherlands) and Germany’s Infineon. If the quarterly figures at these chip makers are disappointing for the automotive segment, it is a sign of things to come.
In addition, the research identifying the key European players sees that these players could lose a sizeable sales market: China. On the other side of the world electric cars are popular, as is the production of these vehicles. Brands from this region, such as BYD, know how to produce electric cars on a large scale and can, therefore, deliver at stunt prices. Another factor affecting prices is the Chinese government’s support for its own electric car producers. Europe does not approve of these practices and, therefore, introduced import taxes on electric cars from China.
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The tax would give European carmakers fairer opportunities for sales. China does not approve of the measure, of course, and while it has always been very protective of its own market, this could speed up the process of starting chip production for cars in its own country. As a result, the European star players in this chip world will have a smaller shipment market.
Chips for security, but also as a privacy risk
Do NXP, STMicroelectronics and Infineon already need to walk away with their tails between their legs? Not if they get smart and keep up with trends in the automotive industry. Belgium’s Melexis seems to be a good example. The chip developer was allowed to write down a four percent increase in sales in its latest quarterly figures, and that amount is 89 percent driven by the automotive industry. The company’s CEO did share that the industry is experiencing challenges, especially in the sales of chips for electric cars. Growth did not come from that area but from the production of safety functions and mood lighting in cars.
The chip industry is not blind to what is happening in the world. The car of the future does need chips for other things at the same time. This is necessary, for example, in safety requirements with which the car anticipates danger and is connected to other mobilists and the road infrastructure. So the car of the future is constantly scanning everything around the vehicle. “By 2030, chips and semiconductors would account for a fifth of a car’s materials list,” argues Bart Placklé, vp of automotive technologies at Imec. This expectation may be somewhat overstated due to the fact that it still bets on the electric story but makes the essence clear: chips are essential in cars of the future.
Those smarter cars do have a downside, by the way. For one thing, car manufacturers are becoming huge data factories. A gold mine for insurance companies that could compile a complete risk profile per user and adjust the price of insurance accordingly. That it is a real danger was shown by General Motors’ story in America.
Also read: Automotive and industrial sectors show chip industry’s fractured status