Tesla, the world’s leading electric vehicle (EV) manufacturer, has announced its collaboration with BYD, a leading player in the EV and battery industry. The partnership involves Tesla incorporating BYD’s lithium iron phosphate (LFP) blade batteries into the rear-wheel-drive entry-level version of the Model Y, which will be produced at Tesla’s Berlin factory in Germany. Deliveries of this model are slated to commence in June 2023. Let’s delve into the significance of this collaboration from the perspectives of both Tesla and BYD.
Tesla’s Berlin factory has thus far been responsible for manufacturing the premium variant of the Model Y, equipped with Panasonic’s 21700 lithium-ion batteries. In contrast, the entry-level version of the Model Y had been imported from Tesla’s Gigafactory in Shanghai, China, with CATL’s LFP batteries installed.
With this collaboration, Tesla will now produce the entry-level Model Y directly at its Berlin factory, integrating BYD’s LFP blade batteries with a capacity of 55 kWh. This battery configuration will offer an approximate range of 440 kilometers. Although this variant features a reduced capacity of 5 kWh compared to the CATL battery-equipped Model Y, the BYD LFP blade batteries boast improved energy density. This enhancement results in an increased range per kilowatt-hour, from 7.6 km/kWh to 8 km/kWh.
Additionally, the adoption of BYD’s blade batteries provides Tesla with cost advantages. The blade batteries employ cobalt- and nickel-free battery materials, which are more affordable. Consequently, Tesla stands to save approximately $750 in battery pack costs when considering a battery cost of $150 per kilowatt-hour. Moreover, the square-shaped design of the blade batteries enables tighter and more efficient packaging, leading to higher energy density. This design also facilitates Tesla’s integration of Cell to Chassis (CTC) technology, which reduces packaging material usage and overall costs.
Considering these factors, the decision to utilize BYD’s blade batteries aligns with the cost-effective preferences of the entry-level Model Y’s target consumer group while fulfilling Elon Musk’s commitment to cost control.
In 2022, BYD overtook Tesla as the world’s largest EV manufacturer, boasting sales of 1.86 million electric vehicles. As a result, BYD’s market share in battery assembly has steadily increased, owing to its self-supply capabilities. As of the first quarter of 2023, BYD stands as the second-largest global supplier of power batteries, with a market share of 16.2%, surpassed only by CATL’s 35%.
Despite BYD’s remarkable growth in the electric vehicle sector, its battery production capacity initially struggled to keep pace. This resulted in a period during which BYD could only fulfill its own demand and was unable to export batteries, impeding the growth of its battery business in terms of customer quantity.
Apart from its use in BYD’s own EVs and the recent collaboration with Tesla for the Model Y, BYD’s batteries primarily find application in Changan Ford vehicles. Furthermore, a staggering 98% of BYD’s electric vehicle sales currently originate from the domestic Chinese market. This high market concentration poses the dual risks of relying excessively on a single market and a single customer for battery sales.
BYD’s inclusion in Tesla’s supply chain with its blade batteries marks a significant step toward diversifying sales risks. Nevertheless, for BYD to maintain its position as the second-largest battery supplier in the future, the company will need to adopt a proactive and diversified market strategy, expanding its presence in the supply chains of various automakers.
(Photo credit: Tesla)
Onsemi, a semiconductor manufacturer, announced at the end of April that it had signed a Long-Term Supply Agreement for SiC power components with Zeekr, a subsidiary of Geely Auto Group. Geely Automotive will use Onsemi’s EliteSiC power components to optimize energy conversion efficiency in its electric drive system. This move signals Onsemi’s aggressive expansion in the automotive SiC market, catching up to leading manufacturers STMicroelectronics and Infineon.
In the SiC semiconductor market for electric vehicles, STMicroelectronics and Infineon have maintained their market leadership by entering the market early, while Wolfspeed and ROHM have gained traction through their vertical integration technology for SiC. On the other hand, Onsemi still lags behind in terms of market share for SiC power semiconductors, even though it acquired GT Advanced Technologies in 2021 and mastered the most difficult wafer growth and production equipment technology in SiC manufacturing. Before 2023, Onsemi was only used in small and medium-sized vehicle models such as NIO and Lucid.
However, Onsemi’s benefits begin to materialize in 2023, thanks to the industry maturity built by early players such as Infineon and STM, combined with Onsemi’s early deployment of SiC-related technology. Onsemi’s SiC product EliteSiC has obtained LTSA from Zeekr, BMW, Hyundai and Volkswagen in the form of discrete and modules. Its CEO, Hassane El-Khoury, has stated that the SiC business will generate $4 billion in revenue over the next three years compared to the total revenue for the 2022 SiC market of approximately $1.1 billion. These factors have made Onsemi the most talked-about semiconductor company in the SiC market this year.
However, the intense competition in the SiC market will test the endurance of resource input sustainability. The rapid growth in SiC demand over the past five years is mainly due to high battery costs and the development of energy density having reached its limit. Car manufacturers have switched to using SiC chips in their electronic components to increase driving range without increasing the number of batteries.
As a result, car manufacturers are aggressively pushing semiconductor companies to accelerate their research and development of SiC technology. This has resulted in a significant reduction in R&D time, but also an increase in R&D costs. Coupled with the impact of intense market competition on profits, the ability to sustain R&D resource input and overall profitability performance will be the key indicators of semiconductor companies’ competitiveness.
Onsemi has successfully improved its profitability performance by streamlining its product lines over the past few years, ranking at the top with a 49% gross margin, according to the financial reports of various semiconductor companies in 2022. This profitability performance allows Onsemi to meet car manufacturers’ cost requirements and secure orders, thereby achieving economies of scale in SiC product growth.
However, in terms of R&D costs as a percentage of revenue, Onsemi ranks last at 7%, compared to its main competitors Wolfspeed (26%), Infineon (13%), STM (12%), and ROHM (8%). With semiconductor companies investing more in technologies such as reducing on-resistance and improving yield rates, how to maintain a balance between profitability performance and resource expenditure while achieving revenue goals through intense market competition will be an important challenge for Onsemi after securing orders from car manufacturers.
The US ban on Chinese industries has left China struggling with a seemingly severe shortage of chips. However, China’s tech giants refuse to surrender; instead, they’re pivoting quickly to survive the game.
Since 2019, the US Department of Commerce has added Chinese leading companies like Huawei to its entity list. Restrictions were expanded in 2020 to include semiconductor manufacturing, making a huge impact on SMIC’s advanced processes below 14nm.
Starting in 2021, the US has been intensifying its control by placing more IC design houses on the list, which include Jingjia (GPU), Shenwei (CPU), Loongson Tech (CPU), Cambricon (AI), Wayzim (RF&GPS), and Yangtze (NAND Flash). Furthermore, the export of advanced EDA tools, equipment, CPUs, and GPUs to China has also been banned.
The goal of such measures is to hinder China’s progress in high-tech fields such as 5G/6G, AI, Cloud computing, and autonomous driving by eroding the dominance of its tech giants over time.
China has been aggressively pursuing a policy of domestic substitution in response to the US’s increasing control. As part of this effort, leading domestic IC design companies like Horizon, Cambricon, Enflame, Biren, Gigadevice, and Nations Technologies have been ramping up their efforts for comprehensive chip upgrades in a variety of applications.
Chinese Brands Ramping up for ASICs
There is a particularly intriguing phenomenon in recent years. Since 2019, China’s leading brands have been venturing into chip design to develop highly specialized ASICs (Application Specific Integrated Circuits) at an unprecedented speed. This move is aimed at ensuring a stable supply of chips and also advancing their technical development.
A closer look at how top companies across diverse application fields integrate ASIC chips into their technology roadmap:
China’s tech giants are leveraging advanced foundry processes, such as TSMC’s 5nm and Samsung’s 7nm, to produce cutting-edge AI chips for high-end applications like cloud computing, image coding, AI computing, and network chips.
Alibaba launched its AI chip, Hanguang 800, and server CPU, Yitian 710, in 2019 and 2021, respectively. Both chips were manufactured at TSMC’s 5nm process and are extensively used on Alibaba’s cloud computing platform.
In December 2019, Baidu released its AI chip, Kunlun Xin, which uses Samsung’s 14nm process, followed by its 2nd generation, which uses a 7nm process, for AI and image coding.
Due to the high technical threshold of SoC technology used in smartphones, mobile phone brands mainly develop their own chips by optimizing image, audio, and power processing.
In the year of 2021, Xiaomi released the ISP Surge C1, followed by the PMIC Surge P1. Vivo first released the ISP V1 in September 2021, followed by an upgraded product, V1+, in April 2022, and then V2 in November 2022.
OPPO, on the other hand, unveiled the MariSilicon X NPU in December 2021, which enhances the image processing performance of smartphones, using TSMC’s 6nm process, and later revealed the MariSilicon Y Bluetooth audio SoC TSMC’s 6nm RF process later in 2022.
The brands are focusing primarily on MCU and PMIC chips that are essential to a wide range of home appliances. They’re also incorporating SoC chips into their smart TVs.
For example, Hisense has jumped into the SoC game in January 2022 by releasing an 8K AI image chip for their smart TVs. Changhong manufactured an MCU with RISC-V architecture and a 40nm process in December 2022.
The leading companies are developing ISP and highly technical SoC chips for autonomous driving, which has resulted in a slower development process.
In 2020, NIO formed a semiconductor design team for Autonomous driving chips and ISP. Xiaopeng started its Autonomous driving and ISP chip R&D project in the first half of 2021. Li Auto established two subsidiaries in 2022, with a primary focus on power semiconductors and ISP chips.
Finally, BYD, which has a long history of working on MCU and power semiconductor components, also announced its entry into the autonomous driving chip market in 2022.
Navigating the US’ Tech Crackdown
So why are these brands investing so heavily in self-developed ASICs?
One reason is to avoid the risks associated with export control policies from the US and its allies. Developing their own chips would mitigate the risk of supply chain disruptions caused by potential blockades, ensuring a stable supply and the sustainability of their technology roadmap.
In addition, there are many internal incentives for these brands – for instance, companies that have self-developed chips will be eligible for more government subsidies, as this aligns with the government’s aggressive policy to foster the semiconductor industry. Brands can also reduce their reliance on external suppliers by using their own ASIC chips, which can further lower the operating costs.
Technology wise, ASIC chips allow brands to enhance the features they require and enable better integration with the software, which could provide efficiency gains at system level – similar strategies are also being employed by Google and AWS with their AI chips, as well as by Apple with its M1 SoC.
With all things considered, it is certainly possible that we will see a persistent trend of more self-developed ASIC chips made by Chinese brands, which could potentially lead to significant changes in China’s semiconductor supply chain from the ground up.
Chinese semiconductor companies are once again quickly making their presence known in the power semiconductor market, particularly in the fields of MOSFET, IGBT, and SiC.
Among various types of power ICs and power devices, MOSFET and IGBT-based voltage-controlled switching devices have become the mainstream products, accounting for more than 70% of power devices due to their ease of use, fast switching speed, and low power loss. They are mainly used in end markets such as automobiles, industry, and consumer electronics.
On the other hand, SiC can further assist in breakthroughs in EV technology and has become the most popular alternative technology route in the market, with its strong material properties such as low resistance, high temperature resistance, and high voltage resistance.
From IGBT and MOSFET to SiC, there has been a surge in demand in recent years, indicating the enormous growth potential of power semiconductors for automotive use. This has attracted many Chinese players to enter the competition.
IGBT: Explosive Growth for Chinese Players
As the core component of new energy vehicles, demand for IGBT is increasing. Looking at the financial reports of overseas large factories, the top five IGBT chip manufacturers in Q1 of this year still face tight delivery times, with the longest reaching 54 weeks.
The rapid growth of the EV and energy storage markets has resulted in a supply-demand imbalance for SiC MOSFETs. Major international IDM factories’ production capacity won’t be able to meet the demand in the coming years. Consequently, Infineon, STMicroelectronics, and ON Semiconductor are focusing on local supply in Europe and America. This has led to Chinese suppliers replacing automotive IGBTs for the domestic market.
In 2022, the IGBT industry in China saw a surge in demand. After a two-year auto chip shortage starting in 2020, the supply of IGBTs has become even tighter. In the second half of 2022, IGBT surpassed automotive MCU and became the biggest supply bottleneck affecting automotive production expansion.
According to the latest statistics from the China Association of Automobile Manufacturers, China’s new energy vehicles continued to explode in 2022, with production and sales reaching 7.058 million and 6.887 million vehicles, respectively, a year-on-year increase of 96.9% and 93.4%, maintaining the world’s first for eight consecutive years.
Many representative companies in China continue to strengthen their IGBT technology research and development:
Since the end of 2021, the IGBT capacity of companies such as CRRC Times Electric, Silan, and Huahong Grace has been ready, and their revenue has also been rising. Combining the data of major companies with revenue exceeding 10 billion yuan that have released their 2022 financial reports, the power device companies are CRRC Times Electric, with 18.034 billion yuan, and Hua Run Micro, with 10.06 billion yuan.
MOSFET: Demand Doubles with the Rise of EVs
MOSFETs are used in high-voltage applications, such as DC-DC and OBC, to convert and transmit electrical energy. On average, there are now over 200 MOSFETs per car. As cars become more advanced and incorporate features like ADAS, safety, and entertainment, the number of MOSFETs per car is expected to double to 400 in high-end models.
With major companies such as Renesas gradually withdrawing from the low and medium-voltage MOSFET market, Chinese players have been accelerating their entry into the automotive supply chain. Currently, companies such as Silan and Nexperia are continuously expanding their global market share of MOSFETs, while other companies such as China Resources Microelectronics, Yangjie Electronic, Good-Ark Electronics, Jilin Sino-Microelectronics, NCE Power Co, New Jie Energy, Oriental Semi and Jiejie Microelectronics have been continuously developing in the field of automotive-grade MOSFETs in recent years.
Chinese IDM companies have expanded their market share by offering high-voltage super junction products:
SiC: Entire Supply Chain Enters the Game
The growth of EV and energy storage markets has been causing a supply shortage in SiC. As major international IDMs are expected to expand their SiC capacity and potentially engage in more M&A activities, Chinese manufacturers are simultaneously make more investments throughout SiC supply chain:
XinYueNeng a new foundry invested by Geely Auto, has also attracted market attention. Its related projects are expected to be put into operation in the second half of this year, and its partner AccoPower is already producing SiC power modules for vehicles.
It’s also important to note the development of the SiC specialized production equipment market. Some key equipment, such as the epitaxial reactor, is experiencing delivery delays, which may impact the expansion plans of suppliers like Tianyu Semiconductor and EpiWorld. On the positive side, it still presents great opportunities for local equipment manufacturers.
The SiC market has been very active lately, with constant news coming from device suppliers and car makers. And there seems to be an ongoing tug-of-war between supply and demand.
Toshiba announced in April the groundbreaking of its power semiconductor fab for SiC in Ishikawa Prefecture, with the first stage beginning in the 2024 fiscal year. This news echoes earlier reports from Japanese media that Toshiba is strengthening the vertical integration throughout SiC equipment, wafers, and devices, and planning to increase the production by three times in 2024 and 10 times by 2026.
Meanwhile, over the past two years, leading companies in the Europe and the US such as Infineon and ST have also accelerated M&A as well as internal expansion for SiC production devices at an unprecedented pace, aiming to expand their SiC-related businesses and maintain their core competitiveness in the market.
Despite aggressive demand-driven expansion plans, the unexpected announcement from Tesla in mid-March that it plans to reduce overall SiC usage by 75% in the next generation of electric vehicle platforms has sparked various speculations in the industry. This move was made without compromising the performance and efficiency of the cars and represents one of the few specific details that Tesla has revealed about its new car plans.
Now here is the question – will the popularity of SiC be a genuine trend, or merely a passing fad that could lead to a potential bubble in the market?
SiC or Si-based solutions?
Compared to IGBT and MOSFET, the dominant technologies in power semiconductor, SiC offers stronger advantages such as low resistance, high temperature and high voltage tolerance that can overcome the technical bottlenecks of EVs by improving battery efficiency and solving component heat dissipation issues. SiC can also make chip design sizes smaller, which means more flexibility in vehicle design.
These advantages have made SiC the most sought-after technology. According to TrendForce, the SiC power device market is expected to grow at a CAGR of 35% to reach $5.33 billion annually from 2022 to 2026, driven by mainstream applications such as electric vehicles and renewable energy.
There is a long-standing debate among the industry about whether SiC will replace IGBTs entirely. What we believe is that SiC may not completely replace IGBTs considering their distinct targeted use scenarios.
However, SiC transistors are expensive due to complex production processes, slow crystal growth, and difficult cutting. Unlike silicon, which can be pulled quickly, SiC crystals grow at a slow rate of 0.2-1mm/hour and are prone to cracking during the cutting process due to their high hardness and brittleness, leading to hundreds of hours of cutting time.
Additionally, SiC transistors also have some drawbacks such as vulnerability to damage and temperature sensitivity, which makes them unsuitable for low-cost and low-power applications.
IGBT, on the contrary, is preferred over SiC in such a field because it is more cost-effective, reliable, and has better capacitance and surge capability for high-power and high-current applications. In certain scenarios, such as DC-DC charging piles, IGBT is irreplaceable due to its cost advantage and suitability.
Could a Hybrid Solution be the Answer?
The premise above can help to explain Tesla’s conflicting decision to cut back on SiC usage.
Tesla’s reluctance to fully adopt SiC technology is mainly due to concerns about reliability and supply chain stability, as evidenced by a mass recall of Model 3 due to issues with SiC components in the rear electric motor inverter.
In addition, the shortage of substrate materials is another challenge facing the SiC industry as a whole, with major manufacturers such as Wolfspeed, Infineon, and ST ramping up production capacity to address the issue. As a result, Tesla is considering alternative ways to mitigate the risks associated with supply chain constraints.
Despite these challenges, SiC remains a promising trend for the EV industry. Even Tesla recognizes its enormous potential commercial value.
In terms of technological innovations, Tesla’s next-generation EVs may feature a novel packaging design for the primary inverter, utilizing a hybrid SiC/Si IGBT packaging approach that leverages the unique strengths of both technologies while avoiding potential pitfalls. This technological advancement poses certain difficulties, but the groundbreaking innovation at the engineering design level is definitely something to look forward to.
(Photo credit: Tesla)