Can Electrification Help the Automotive Semiconductor Industry Shrug Off Macro-Economic Headwinds?

Our latest quarterly update of the outlook for?automotive?semiconductor?demand has just been released, Automotive Semiconductor Demand Forecast 2020 to 2029 - July 2022. The ongoing COVID situation and the war in Ukraine, and subsequent fears over the global economy, are the dominant factors in this update, along with the ongoing attempts to resolve semiconductor supply issues.

Despite these challenges and a subsequent drop in light passenger vehicle production for the duration of the forecast, the moves towards electrification and associated trends for ADAS/autonomy, connectivity and digitalization will be maintained serving to underpin continued growth in semiconductor demand despite.

Automotive Semiconductor Outlook Update

The ongoing COVID situation and the war in Ukraine, and subsequent fears over the global economy, are the dominant factors in this update, along with the ongoing attempts to resolve semiconductor supply issues. From a vehicle production standpoint, this update shows a slightly worse expected performance in 2022, with volumes now 1.0% down on previous expectations and a long-term outlook which will generally be 4 to 5% lower than was expected in the April update.

At this stage it does appear that the moves towards electrification and associated trends for ADAS/autonomy, connectivity and digitalization will be maintained however, meaning that semiconductor supply continues to play catch-up to vehicle production. The tight supply will continue to be reflected in higher material costs including semiconductor component ASPs.

The overall difference between the April 2022 and July 2022 iterations reflects the revised vehicle production outlook.

Automotive Semiconductor Forecast Comparison July 2022 vs. April 2022

The biggest gap in the year-on-year growth occurs in the 2023 timeframe, reflecting the vehicle production drop. However, the assumptions behind electrification and other underlying trends means that year-on-year growth through the end of the forecast maintains a trajectory that is broadly aligned with the previous iteration.

It is assumed that restoration of the semiconductor supply-demand balance will be delayed to 2023 onwards. This will be coupled with an ongoing recovery from the COVID-19 crisis, though as observed earlier this year, there remains a possibility that zero-COVID strategies continue to disrupt the automotive supply chain.

There is an easing of demand from the consumer sector which should translate into additional capacity being made available eventually. However, while companies like TSMC and Micron have noted some evidence of excess inventory in mainstream consumer markets, this easing will still take some time and current capacities remain tight across most sectors including automotive.

Some of the more significant bottlenecks are occurring with components that are based on older process nodes, i.e., older than 28nm, e.g., 40nm and older etc. In these cases, the fabs have usually not been upgraded so they have filled up very quickly and are running at full capacity presently. There is no overhead and no real incentive to invest to add capacity here since it is expected that these processes will be superseded over the coming years in any case. A key assumption here is that the move towards use of domain controllers and zonal architectures will gather pace.

However, we shouldn’t expect this to have a significant material on component demand during the forecast timeframe. The move to domain and zonal architectures are being made at an individual company level and are not characterised by a collective automotive industry effort driven by a standard. So, it will take time for these and other changes to impact the semiconductor supply chain. It is reasonable to assume that early iterations of new OEM platforms, especially those that may yet underpin ICE-based powertrains also, may still show examples of individual discrete ECUs in use. Software enabled capabilities will start to virtualize some of the non-safety-critical ECUs in later generations and this will start to filter through over the next five to ten years.

As noted in previous posts, there remains a risk of excess inventory, but most automotive semiconductor suppliers have entered long-term supply arrangements with their customers. In many cases, these are NCNR (non-cancellable, non-returnable) agreements which provide a certain measure of protection. We continue to model price increases for 2022 with pricing for strategic components being maintained.

The Automotive Semiconductor Demand Forecast 2020 to 2029 - July 2022 data is modelling a 16.1% CAAGR over the five-year period 2021 to 2026, the. Excluding semiconductor-based sensors, the CAAGR for automotive semiconductor dollar demand is expected to be even higher at +16.6%. The global automotive semiconductor market value is forecast to be $91.2 billion by 2026 and reach $108.1 billion by 2029 (including semiconductor-based sensors).

We’ll be analysing the automotive semiconductor company financials over the coming weeks to see whether the outlook presented in our latest forecast aligns with company revenues and their expected outlook for this year and beyond.??

Feel free to contact me to discuss this post and the underlying questions raised.

Also, check out our latest quarterly view of the global outlook for?automotive?xEV?systems?and associated?semiconductor?and?sensor?demand. Global xEV System, Semiconductor and Sensor Demand Forecast 2020 to 2029 - July 2022 ?shows the continued momentum pushing market demand to over $29 billion by 2029.

If you’re?looking for more granularity in the xEV segment, then check out the full suite of?datamodels?presenting?global?and?regional (Brazil, China, East Europe, India, Japan, NAFTA, Russia, South Korea, Thailand, West Europe and ROW) outlooks for xEV systems and associated semiconductor and sensor demand from Strategy Analytics’ newest syndicated subscription offering, Electric Vehicles Service (EVS).

For more information on Strategy Analytics’ extensive coverage of the automotive industry, take a look at the PBCS (Powertrain, Body, Chassis & Safety), AVS (Autonomous Vehicles Service), AIT (Automotive Infotainment and Telematics) and ACM (Automotive Connected Mobility) services.