Raphael ThysWhen the chips are down…
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Published in
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2 min read
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2 days ago
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IMAGE: OpenAI’s DALL·E, via ChatGPT
The Chinese government has just told the country’s biggest carmakers, such as BYD, Geely and SAIC to source their chips from local manufacturers, rather than relying on foreign-made chips, in order to reduce dependence on increasingly constrained foreign technology and create demand for a market it is pumping huge amounts of money into.
China’s dilemma is that while its technology, particularly in the case of EVs, increasingly dominates a growing number of markets thanks to strong domestic demand and very low costs, many of its products still depend primarily on US technology.
The differences between the two countries are increasingly evident: while growing demand for EVs in China is putting traditional carmakers out of business and turning their factories into zombies which now send their products to Russia to offset their losses, in the United States the EV market is around 10% of the total and growing slowly, which speaks volumes about consumer awareness there, as well revealing how uncompetitive most of its manufacturers are, with the obvious exception of Tesla.
An EV is a computer on wheels, to the point that traditional consumer electronics manufacturers such as Xiaomi are now making cars. Obviously, this means that the components of an automobile increasingly resemble those used in consumer electronics products, and that the decision as to which chips are installed in them is a strong constraint in defining their performance.
For China’s ambitions, dominating the EV market is crucial, especially considering that it already dominates other strategic areas such as solar panels and batteries.
However, achieving this dominance depends not only on its manufacturing capacity, but also its ability to source the components needed to maintain the performance of these products in the premium segment. For Chinese products, any suggestion of inferiority could generate enormous damage, and offer the West the possibility of surpassing its performance on the basis of better and more advantageous chips. Hence the strategic significance of sub-five-nanometer chip manufacturing, which makes it possible to pack many more transistors into less space and obtain much more advanced performance.
In a product such as an EV, these more advanced features largely determine the technological capabilities of the vehicle, which greatly influences their appeal to customers. For Chinese manufacturers, who have already proven that they can reach Western consumers with attractive products, a restriction on what chips they can and cannot install could be very important, especially if their government’s efforts to subsidize domestic chipmakers fail to bear fruit quickly — in an industry characterized by generally very slow and costly advances.
Time will tell whether China will meets its chip ambitions. But right now, few things are more important now than going the few nanometers that make for more powerful chips.
(En español, aquí)