By Yan Taw (YT) Boon
Rising gas prices are accelerating the shift from traditional internal combustion vehicles to EVs—reshaping the auto industry and driving semiconductor demand.
As gas prices have cruised to their highest levels in nine months, owners of internal combustion cars (ICEs) are under pressure to find sustainable and cheaper alternatives. According to the U.S. Department of Energy, driving an electric vehicle (EV) could save as much as 60% on average compared to traditional cars, assuming a fuel price of $2.85 per gallon1; meanwhile, prices have surged past $5 in some states.
With favorable purchase taxes, advancements in battery technology, and rapid expansion of charging infrastructure, global EV sales soared to 10 million in 2022, a ten-fold increase in just five years.2 We believe this industry transformation is gaining momentum and will fuel demand for the semiconductors at the core of many EV systems—including power-management, motor-control, battery-optimization, advanced driver assistance (ADAS) and infotainment. By McKinsey’s estimate, semiconductor content in EVs will triple by 2030,3 likely—in our view—giving rise to new players throughout the EV supply chain.
For example, Chinese EV manufacturers are making sizable investments in advanced battery technology and electric powertrains found in cost-effective EVs. Traditional automakers are even partnering with EV producers in hopes of marrying their scale advantage with the EV industry’s software know-how—as Volkswagen recently did by teaming up with XPeng (XPEV) to produce two new models that cater to the middle-class segment.4
Other players are planning new fabs to make chips that can enhance ADAS systems, which demand reliable and fast connectivity to process real-time data from various sensors and cameras. Most recently, TSMC (TSM) established a European Semiconductor Manufacturing Company (ESMC) joint venture with Bosch, Infineon (OTCQX:IFNNY), and NXP (NXPI) to build a fab in Germany to produce chips serving the automotive and industrial sectors.
As the shift from ICEs to EVs continues apace, we believe industry leaders along the semiconductor supply chain are well-positioned to benefit.
Source: (1) Energy.gov; (2) IEA; (3) McKinsey; (4) Reuters, “Volkswagen Buys XPeng Stake, Partners With SAIC To Boost China EV Lineup,” July 23, 2023.
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