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Automotive Semiconductors Open Stellar Opportunities

According to the latest industry report published by the World Semiconductor Trade Statistics (WSTS), the global semiconductor market is expected to increase 9.5% in 2018 representing a growth of $451 billion. 

Increased connectivity and automated driving are shifting where revenue is going in the automotive sector. This shift is going to affect demand for automotive semiconductors bringing new opportunities. Semiconductor leaders must consider the discussion of new strategies adapting to the rapidly evolving automotive market. 

The future of car sharing: Mercedes-Benz Smart EQ Level 5: fully autonomous
Image source: Susan Fourtané

The future of car sharing: Mercedes-Benz Smart EQ Level 5: fully autonomous

Image source: Susan Fourtané

Earlier this year at Mobile World Congress in Barcelona, global automotive OEMs introduced innovative sensors, mapping applications, and connectivity platforms among other new technologies embedded in the connected vehicles. 

The expansion and adoption of electric vehicles (EVs) is going to impact public and private transport as well as logistics. As vehicles become more complex, the demand for automotive semiconductors will continue to enable innovations in automotive technology. 

According to a McKinsey report, there are three topics all semiconductor leaders must consider in order to pursue automotive opportunities

  • Trends shaping the automotive landscape
  • Factors that affect demand for automotive semiconductors
  • Major strategic issues to be addressed to adapt to the evolving market

The automotive market revolution means semiconductor evolution

In an Automotive Revolution: Perspective Toward 2030 report published by McKinsey, the research company reviewed four major forces that are transforming the automotive industry:

  • Vehicle electrification: EVs could easily represent 5% to 10% of car sales by 2020. This is going to keep growing as they comply with global emission regulations reaching between 35% and 50% by 2030 as established by the Paris Agreement. Up to 15% of cars sold in 2030 could be fully autonomous.
  • Increased connectivity: Vehicle-to-vehicle (V2V) and vehicle-to infrastructure (V2I) connectivity are rapidly increasing. They will be totally supported by 5G networks around 2020. This connectivity extends to vehicle-to-home. BMW vehicles, for example, connects to smart-home services such as Deutsche Telekom’s SmartHome app. This lets drivers to adjust home’s heating and lighting while on the road. As better connectivity features and solutions become mainstream, the revenue they produce for OEMs could rise more than $60 billion by 2020.
  • The growth of autonomous driving : Autonomous cars are classified based on their driving capabilities. SAE International created a standard classification system that includes six categories:
    • Level 0, no automation: Drivers control all functions.
    • Level 1, driver assistance: The vehicle controls steering or acceleration and deceleration, but drivers must be ready to take control at any time.
    • Level 2, partial automation: Vehicles control accelerating, decelerating, and steering. Drivers can take control at any time.
    • Level 3, conditional automation: Vehicles control all functions. The system may request the driver intervention in certain situations.
    • Level 4, highly autonomous: Vehicles control all tasks. The system may ask drivers to intervene at some point but can direct the car if there is no response.
    • Level 5, fully autonomous: Drivers start the car and establish destination, but vehicle software makes all the decisions.

Highly autonomous (Level 4) vehicles are expected to hit the road between 2020 and 2025, after which they could experience steady growth. According to McKinsey, 35% of vehicles sold in 2030 will have conditional automation (Level 3) and 15% will have high automation (Level 4). Global automotive revenues could reach about $6.7 trillion by 2030 at a growth rate of around 4.4% annually.

  • Shared mobility services : McKinsey’s forecast suggests that e-hauling or ride-sharing services could represent 10% of vehicle purchases by 2030. This shift in the horizon is prompting many OEMs to increase efforts to capture this market.

Image source: McKinsey analysis 

Image source: McKinsey analysis 

OEMs and suppliers must be sure to address fundamental concerns about security and safety since the exact growth depends on improvements in core tchnologies, pricing, consumer acceptance of self-driving vehicles, and how secure and safe they are.

Automotive semiconductor sales rising  

The rise of mobility services and greater connectivity will increase revenue and also affect other areas because shared vehicles have higher maintenance cost and and EV powertrains are less expensive to maintain than those used in conventional vehicles. Also, crash-repair costs for autonomous vehicles can be up to 90% lower. All this could change the source of demand not only for semiconductors but also for other electronics components. 

Changes in the automotive semiconductor market

With move to automated driving will be significant over the mid-to long term, the demand for automotive semiconductors is expected to increase. The growth of the EV segment will greatly contribute to this increase because hybrid EVs contain about $900 worth of semiconductors and, in comparison, standard EVs have over $1,000 worth. By comparison, the semiconductor content of conventional vehicles averages $330 in semiconductors.

Current projections show that sales of automotive semiconductors will continue to increase at about 6% percent annually through 2020. That means an annual sales range for automotive semiconductors between $30 billion and $42 billion. 

Image source: McKinsey analysis

Image source: McKinsey analysis

Automotive semiconductor demand by core segment

Growth patterns in the core-applications segment show the greatest increase through 2020 is going to occur within the safety segment. Other categories including body, driver information, powertrain, and chassis, are expected to exhibit similar growth. Semiconductor demand across device segments (such as memory, microcomponents, logic, analog, optical, and sensors) are, however, not expected to see major shifts through 2020. By then, EVs will require more and different types of semiconductors shifting demand patterns.

Image source: Strategy Analytics; McKinsey analysis 

Image source: Strategy Analytics; McKinsey analysis 

Image source: Strategy Analytics; McKinsey analysis 

Semiconductors & security

Because connected and autonomous vehicles are part of, by definition linked, semiconductor companies must incorporate extra security features into chips. Safety and security concerns, especially around hacking, are critical.

In addition, semiconductor leaders should develop other security solutions, especially in the area of automotive connectivity. Developing and embedding end-to-end security solutions will become a differentiator, and soon semiconductor companies moving quickly into developing secure automotive innovations will become the leading suppliers to OEMs that market EVs and autonomous vehicles. 

1 comment on “Automotive Semiconductors Open Stellar Opportunities

  1. MarkSindone
    July 15, 2018

    Everything is becoming integrated these days as one product suddenly incorporates multiple aspects of another industry. As is that case with autonomous vehicles and electric cars, we are starting to see levels of sophistication that the combined technologies are able to create only now that they are merged!

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