BriefCASE: Automotive semiconductor industry sees long-term positive outlook
Over the past few years, the automotive semiconductor industry has navigated a dynamic landscape shaped by a myriad of factors. From pandemic-induced semiconductor shortages to regulatory export controls and ambitious global investment plans, these elements have profoundly influenced industry dynamics. Amidst this backdrop, the industry has demonstrated resilience and adaptability in response to evolving market conditions and technological advancements.
2023: Market followed the historic growth path
The automotive semiconductor market experienced a more-than 25%
increase in revenue in both 2021 and 2022, demonstrating
significant momentum. Subsequently, in 2023, the market continued
its upward trajectory with an increase of 18.1%, reflecting a
strong yet relatively slower pace compared to the gains recorded in
the previous two years. Electrification, digitization, increased
adoption of connectivity features, and automated driving all
contributed to this heightened demand for semiconductor chips in
the automotive sector.
The chip shortage paradoxically also contributed to inflating the
automotive semiconductor sales in 2021 and 2022 because of panic
buying. This resulted in high inventory level in the channels which
have been a subject of concern for the past 18 months, with an
anticipated inventory correction expected to eventually take place.
In 2023, there were indications of this impending inventory
correction within the automotive semiconductor market, particularly
evident in regions such as Europe. This correction aimed to realign
surplus inventory levels with actual market demand. From the market
share data it is evident that the impact of the inventory
correction was greater than anticipated in 2023 already.
In the mainland Chinese automotive sector, the shift towards
electrification remains a driving force. Within this landscape, the
power-discrete segment has notably gained prominence. A key
development is the rise of captive production, with OEMs like BYD
designing their own semiconductors, thereby bypassing traditional
suppliers such as Infineon. The trend towards self-sufficiency,
irrespective of whether an OEM utilizes its own fabrication
facilities or partners with foundries, represents a significant
shift in the market dynamics, challenging the established
semiconductor supply chain. This evolution underscores the
importance of OEMs in the semiconductor value chain and the
potential impact on merchant suppliers.
2024: Potential reset year
Despite apprehensions surrounding a potential market downturn,
the automotive semiconductor industry is poised to experience what
analysts refer to as a "soft landing" this year. A "soft landing"
describes a scenario where market adjustments occur gradually,
preventing a sudden and severe contraction. Since inventory is not
concentrated in 2024 — but started in 2023 already — the
correction is not as brutal and the market is expected to retain a
positive momentum reflecting a resilient response to the preceding
inventory correction.
In 2024, the automotive semiconductor industry is projected to have
the lowest revenue forecast in the past four years, at less than
4%. Next to the inventory burning, several additional factors
contribute to this modest market expansion, including:
1. A change in the distribution of vehicle propulsion, with a
reduction in the uptick of battery-electric vehicles (BEVs).
2. Aggressive price drop for some semiconductor categories, such as
analog chips, as some suppliers with excess capacity reduce their
price to increase their market share and to fill their fab.
Additionally, new automotive semiconductor suppliers from mainland
China are challenging both internal and global markets with their
products.
In terms of key semiconductor markets, the rebound in memory
markets is expected to be slow, despite the adoption of generative
AI using higher bandwidth memory. However, silicon carbide-based
(SiC-based) semiconductor solutions are expected to see increased
adoption for the inverters and DC-DC converters — despite
costing more than silicon IGBT (insulated-gate bipolar transistor).
This is due to their improved energy transfer efficiency and
last-mile performance.
2025 and beyond: A long-term positive outlook
There is a positive long-term outlook for the automotive
semiconductor industry in 2025 and beyond; S&P Global Mobility
forecasts that industry revenues will exceed $130 billion by 2029.
After the inventory reset in 2023 and 2024, normalized demand from
OEMs and Tier 1 suppliers is expected to drive the automotive
semiconductor market forward in 2025.
Electrification is also expected to continue as a pivotal trend
within the technology landscape, exerting a significant influence
on the dynamics of the automotive semiconductor market with a
turnaround expected for BEVs in 2025.
Most OEMs have further outlined plans to transition towards
software-defined vehicles, prompting concurrent adoption of domain
controllers, central computer architectures, and zonal controllers.
As a result, modern vehicles are increasingly equipped with
forward-looking hardware, such as sensor suites, computing, and
communication components, intentionally over-engineered to
accommodate future functionalities via OTA updates. This trend is
expected to positively impact the demand for high-end
System-on-Chips (SoCs) and DRAM and NAND memory chips.
Additionally, there is increasing demand for SiC-based
semiconductors. As SiC-based technologies evolve and manufacturing
processes improve — resulting in higher price erosion and an
increase in SiC wafer size from 6" to 8" — their adoption rate
is expected to increase. This will primarily be driven by
lower-segment vehicles that did not previously consider SiC
adoption due to costs.
Mainland China's push towards self-sufficiency of chips have
positively impacted several regional semiconductor companies.
Companies such as Horizon Robotics and Black Sesame are anticipated
to expand their presence within the advanced driver assistance
system (ADAS) sector with their bespoke semiconductor
system-on-chips.
After a soft landing in 2024, S&P Global anticipates a robust
market rebound in the coming years, supported by several factors
including electrification, growing consumer preference for advanced
features and functionalities, and the widespread implementation of
Over-The-Air (OTA) support resulting in higher semiconductor
content per vehicle. Moreover, the transition of OEMs towards
software-defined vehicles presents a strategic advantage for the
automotive semiconductor industry.
Author: Nimish Ashar, Associate Director of Research and
Analysis, Supply Chain & Technology, S&P Global
Mobility
Learn more: Semiconductor Market
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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.