How smart cars are revolutionizing the automotive supply chain – 05/18/2023 – Market

China’s auto industry supply chain faces profound changes as the transition to electric and smart cars accelerates, breaking the old supply system and bringing in new competitors.

“The penetration rate of electric vehicles in China is already the highest in the world, and the entire automotive supply chain is undergoing an overhaul,” said an official at a state-owned investment company. “Challenges and opportunities lie ahead.”

China accounted for 30% of global sales of new energy vehicles (NEV), followed by Europe with more than 20%, while the United States’ share was 8% in 2022, according to the International Energy Agency. At this year’s Shanghai International Auto Show in April, more than a third of the 1,400 cars on display were EVs.

A smart car can be equipped with dozens or even hundreds of integrated circuits, each responsible for a different function, such as driving, entertainment and monitoring tire pressure. Chips are specialized. In the international market, companies like Nvidia, Qualcomm and Mobileye dominate the luxury car market.

In China, companies such as Huizhou Desay Sv Automotive, Thunder Software Technology and iMotion Automotive Technology (Suzhou) have seen rapid rise, providing localized services as partners of these three major chip suppliers. For example, Desay is a major integrator for Nvidia in China.

The smart vehicle supply chain, divided by computing power, algorithms and data, is completely different from the pyramidal structure of a traditional automotive supply chain. The old system classifies suppliers by tiers, from suppliers of finished components, such as brake systems or seats, to companies that manufacture basic elements that go into component systems.

“The automotive supply chain has become a mesh that relies on cross-collaboration,” said David Li, founder of steering sensor maker Lidar Hesai Group.

In the age of smart cars, automakers need to co-develop systems with chip and software vendors, said Horizon Robotics President Chen Liming. “These collaborations will give automakers more autonomy, shortening the entire development cycle,” Chen said.

Emerging Chinese chip makers are trying to seize the opportunity to cut costs in the automotive supply chain. Chinese automakers, especially state-owned ones, are more inclined to use domestic semiconductors. There are US export restrictions on Chinese chips, and concerns about future decoupling are growing, automotive chip suppliers tell Caixin. The global chip shortage that began in 2020 has accelerated the adoption of domestic products by Chinese automakers.

As competition intensifies, cost control will be the deciding factor for vendors. Automakers prefer smart, cost-effective solutions. Chen of Horizon Robotics said the company needs to use the hardware’s computing power to provide higher performance and better cost savings for automakers.

Today, smart car makers hear a simple, straightforward request: “Good quality, low price, easy to use,” according to an executive at a smart car supplier.

Foreign vendors, who dominated the era of fossil fuel cars, will not stand by and watch their Chinese counterparts conquer the smart car market. Tier 1 global suppliers Robert Bosch and ZF Friedrichshafen are doubling their investments in China. Bosch said in November it will invest 150 million yuan ($21.6 million) to build a new research and development (R&D) center for smart driving platforms.

ZF plans to invest in an automotive electronics plant in Guangzhou, with mass production expected by 2025. It has also recently entered into strategic partnerships with Horizon and automotive software company Neusoft Reach.

internal development slows down

Chinese smart car makers are often modeled after Tesla, a leader in homegrown self-driving systems. Nio Inc.’s first generation vehicle platform models. used Mobileye’s self-driving chip and perception algorithm, while its second-generation systems began the development of self-developed self-driving systems.

Li Auto, which started investing in the development of autonomous vehicles in 2020, also had Mobileye provide its first automotive driver assistance system. But it turned to Horizon and Nvidia in 2021. Its urban driving assistance system should cover 100 cities by the end of this year.

XPeng, known as the most Tesla-like company in China, launched its X Navigation Guided Pilot autonomous driving system in September 2022, covering highways and parking lots, as well as much more complex urban driving scenarios.

“A true smart car company cannot simply outsource the digital structure, software, hardware and data completely to its partners,” XPeng President He Xiaopeng said on April 16 ahead of the Shanghai Auto Show. XPeng will stick with self-developed cars, its core competency, and cannot rely entirely on suppliers in the smart car era, he said.

However, traditional automakers prefer to wait until supply chains are fully developed for smart cars or EVs, according to a researcher at a conventional vehicle maker. “No leader of traditional automakers would say, ‘Let’s build a smart car ourselves,'” this person said. Research and development costs for “a new car model can reach 2 billion yuan. They can’t afford to gamble on that.”

Chinese tech giant Baidu last month announced the launch of its Apollo City Driving Max smart driving system, said to be one of the first systems in China capable of steering a car on urban roads, relying primarily on visual perception and sensor-based technologies. laser.

“Some companies that have tried to self-develop smart cars have gradually realized that such attempts require huge investment,” said Chu Ruisong, general manager of Baidu’s smart car unit. “The math just doesn’t make sense and the industry’s ‘self-research fever’ is waning.”

The cost of locally produced self-driving systems is too high for mass-market vehicles, according to Zhang Lin, president of smart car provider Freetech. “I believe Nio will have to find third-party cooperation when making cars with a cap of 300,000 yuan (R$219,000),” he said.

Nio is exploring cooperation opportunities with DJI Automotive, a subsidiary of SZ DJI Technology, a Shenzhen-based drone manufacturer that provides integrated solutions for autonomous driving. The products could be used in new Nio models in 2024.

Rise of Chinese Chips

Chips are behind changes in the auto industry’s supply chain and production model. The Chinese industry realized that it could not “overly rely on foreign chips” as early as 2019, when the United States sanctioned Huawei. Several Chinese chip makers are seizing the opportunity to gain a foothold in the auto industry amid US sanctions and global chip shortages.

State-owned automakers are the first group of customers for these Chinese chip developers. Founded in 2015, Horizon found its first customer in state-owned Changan in 2020, then started working with state-owned SAIC Motor, FAW Group and Guangzhou Group. Nanjing SemiDrive Technology develops chips for FAW’s Hongqi SUV models.

“At the beginning of 2020, automakers only knew their tier 1 suppliers, but they have come to know their chip suppliers much better in the past two years,” Nio President Qin Lihong said, citing the global chip shortage.

Foreign automakers have also chosen to work more closely with Chinese chip developers to ensure supply chain stability. Volkswagen AG said in October it will invest 2.4 billion euros (R$13.2 billion) in a venture with Horizon Robotics to accelerate the development of automated driving solutions in China.

In the mid- to low-end market, Chinese chip developers are competing head-to-head on price with foreign rivals such as Nvidia and Texas Instruments. While Nvidia’s Drive Orin-X chips cost more than 10,000 yuan ($2,000) each, domestic chips with similar ratings of 100 trillion operations per second are priced in the 5,000 to 6,000 yuan range, according to Wang. Haojun, CFO of autonomous startup Pony.ai.

As business from domestic chip developers increases, Chinese suppliers of software and operating systems are also finding opportunities, according to Mao Haiyan, responsible for global sales at Neusoft Reach in Europe and the US.

Horizon led China’s automotive driver assistance systems market for passenger cars with 49.05% in 2022, followed by Nvidia with 45.89%, according to industry group Gaogong. Texas Instruments had 2.69%; Mobileye, 1.97%; and Huawei Heisi, 0.41%.

Qualcomm nearly corners the high-end automotive chip market, while China’s SemiDrive is more favored by mid-range automotive brands, according to Qualcomm Vice President Chen Shujie.

price war

Competition in the smart car industry has become fiercer than it was two years ago, especially on price, an auto industry analyst tells Caixin.

The cost of advanced assisted driving technology must drop sharply from several tens of thousands of yuan per vehicle to the range of 10,000 to 15,000 yuan to penetrate the mass market, said Yuan Feng, general manager of GAC Capital, at the summit of EV and smart car investment from the company on April 26. Costs for some components, such as lidar sensors and computing platforms, have dropped by as much as 60% in the past year, according to research by GAC Capital.

Controlling costs is key to conquering the sub-RMB 150,000 car segment, which accounts for half of China’s auto market, according to Liu Feilong, founder and CEO of Hongjing Drive, a provider of self-driving systems. The cost of smart driving solution for these car models is 3,000 to 4,000 yuan, Liu said at the Shanghai Auto Show.

This text was originally published here. Translated by Luiz Roberto M. Gonçalves.