Analysis of the Impact of Import Tariffs on Automotive Chips
1. Interpretation of Import Tariff Policies
Impact of Origin Certification Adjustments: The adjustment of origin certification for import tariffs has attracted attention regarding its impact on automotive chips. Historically, during chip shortages, investment opportunities existed in the automotive supply chain and domestic alternatives. This time, there are significant opportunities for domestic substitution of automotive chips, including resource chips. It is recommended to closely monitor related changes.
Certification Status of Imported Chips: The definition of chips or integrated circuits has previously had ambiguous areas. In the past, the production location of the fully packaged chip could be considered the country of origin. However, after the customs tariff changes, origin certification must be based on the wafer fabrication location, and the enforcement is stricter, leaving little operational space. However, the U.S. has product exemptions for equivalent tariffs, and China may also grant equivalent exemptions. Future policy changes need to be observed in the next 1-2 weeks.1-2 weeks of policy changes still need to be observed.
Impact from Different Value-Added Perspectives: According to business value, if the value-added portion of chips in packaging and testing stages is higher outside the U.S., they can be imported without tariffs. However, this policy is more directed at non-integrated circuit products, such as diodes, power devices, transistors, etc. Currently, the definition of automotive-related chips is relatively clear, but future policy changes are uncertain.
2. Value of Automotive Chips and Domestic Substitution Status
Value of Chips in Different Automotive Segments: Taking a 400V electric architecture new energy vehicle as an example, the total value of electronic chips in the vehicle is approximately $2000. By application area, the cockpit and autonomous driving domains have higher chip values due to rich functionalities and complex units, accounting for nearly or over 25%-30%; traditional chassis and power domains, along with the three electric systems, account for about 30%; the body domain accounts for about 15%.
Degree of Domestic Substitution in Each Segment: General power supply chips have basically all domestic alternative models or solutions; in the signal chain, simple operational amplifiers, comparators, and some protocol chips have low technical barriers, with foreign solutions but also alternatives available. However, high-end complex functional safety requirements for MCUs, cockpit and autonomous driving domain control processors, and digital processing-related chips, as well as high-speed signal chains, specific application analog chips, and high-temperature drive chips limited by processes, are still dominated by foreign solutions. In terms of monetary proportion, about 70% of analog chips have domestic alternatives, while 30% have low feasibility for domestic substitution in the short term; about 50% of digital chips are strongly dominated by foreign companies.
3. Impact of Tariffs on Vehicle Manufacturing and Automotive Enterprises
Value Increase and Domestic Switching in Vehicle Manufacturing: Taking TI and other U.S.-based analog chips as an example, 70% can be replaced, and replacement products are already mature and in mass production with market share. If the policy is implemented, from the perspective of solution maturity, it is feasible, but switching to customer product designs must consider automotive industry processes, such as change verification and reporting to OEMs, which may take 6-9 months. If market demand is urgent, the time may be shortened.
Domestic Chip Localization Status of Different Automotive Enterprises: Leading automotive enterprises can achieve an average of over 20% localization rate for domestic chips. State-owned or central enterprise-backed companies like FAW, SAIC, GAC, Changan, and Dongfeng have localization requirements and will choose specific models to achieve higher localization rates, with some models reaching 70%-80%, overall close to 30%; private enterprises like BYD, Chery, and Geely consider supply chain security for domestic backup, achieving close to the industry average of about 20% without political task requirements; among new forces, except for Leap Motor, companies like Weilai and Xiaopeng have localization rates just over 10%, while Leap Motor follows a model similar to BYD, prioritizing domestic and cost-effective products, with faster localization progress; joint venture companies have no inclination towards localization under cost and market logic, with localization rates just over 10% within the joint venture system.
4. Strategies of International Chip Suppliers
Impact on Some International Chip Suppliers: Companies like NV and Qualcomm, due to manufacturing considerations of supply chain costs, have most of their production capacity outside the U.S. For example, Nvidia has some production in the U.S. but more in Asia through TSMC, while companies like MPS that produce analog chips in the U.S. have much of their capacity in Asia and domestically, so the current policy has a limited impact on them.
TI’s Impact and Response Strategy: As a deeply integrated IDM company, TI has about 80% of its analog chips, with 70%-80% of production in its U.S. factories. The new policy may theoretically affect about 60% of its total revenue. TI’s response strategies include waiting for the policy to be implemented and making backup capacity transfers, but due to its own model and process feasibility, it will not easily outsource. It may transfer some feasible production capacity to its other facilities, such as the 8-inch factory in Germany, TI’s Chengdu factory, and two factories in Japan, but these factories have limited capacity. For example, transferring from 12-inch to 8-inch will increase costs by 30%, and some complex analog products are also difficult to transfer. Overall, about 50% of production capacity has feasible transfer options. TI’s autonomous driving-related chips, such as ta4, are over 80% produced in Korea and TSMC, with little impact from tariffs.
5. National Policy Considerations and Changes in Automotive Enterprise Mindset
National Policy Considerations: The country may follow the principle of reciprocity regarding chip tariffs. If the U.S. exempts certain products from tariffs, China may also reciprocate. From an industrial perspective, U.S. chip manufacturers hold a significant market share in the automotive sector. If the policy is implemented and has a large impact, and many products currently have a leading position or cannot be replaced domestically, the country will not adopt a one-size-fits-all approach. Short-term expectations are relatively optimistic; if the U.S. does not strictly enforce tariffs, China may also temporarily allow exemptions.
Changes in Automotive Enterprise Mindset: Compared to the chip shortage in 2021, automotive enterprises have more experience in responding. On one hand, domestic substitution solutions have matured and have been validated or implemented in mass production vehicles; on the other hand, enterprises have more experience in channel management, such as regular communication with chip manufacturers and having their own dealer and supplier channels for stockpiling, providing more means to cope with the current situation. Although complete domestic substitution cannot be achieved in one step, the requirement for domestic substitution rates will be higher than last time.
6. Analysis of Domestic Substitution Rates in Different Fields
Acceleration of Domestic Substitution for General Products: General power supply chips, relatively simple low-speed signal chips, and general logic chips are mature and can be produced by domestic manufacturers, with little difference from foreign solutions. However, previously, due to cost control, they could not compete with companies like TI. If there is a policy push for domestic substitution, these general components will receive more preference and support, potentially approaching a 50-50 substitution rate.
Opportunities for Domestic Substitution in Specific Fields: Some products monopolized by U.S. companies, such as high-speed signal chain service products, analog front ends for BMS, and some MCU-specific chips, may accelerate the introduction of domestic alternatives for verification and switching due to geopolitical considerations, even if domestic alternatives are not mature. In the analog chip field dominated by European suppliers like Infineon, ST, and NXP, due to product maturity, large market share, and domestic supply chain layout, the urgency for customers to switch to domestic products is not high. They will prioritize resolving issues in U.S.-dominated specific fields before considering others.
Domestic Substitution Status in Cockpit and Autonomous Driving: Qualcomm holds a high market share in the cockpit domain, and there are few domestic solutions that can compete with it. Therefore, short-term domestic substitution opportunities are limited. Although companies like Chipone exist, many projects are driven by domestic political requirements. In pure commercial competition, Qualcomm has an advantage, and terminal manufacturers are quite reliant on Qualcomm solutions, so short-term domestic substitution opportunities are minimal. Moreover, Qualcomm has a large scale in the consumer sector, allowing it to minimize tariff impacts and express its commitment to the Chinese market.
In the autonomous driving domain, there is some room for domestic substitution. Compared to the cockpit, there are relatively more options available in the autonomous driving field, such as Horizon and Black Sesame, which have a smaller gap compared to Nvidia. Some domestic solutions have been chosen by customers purely for commercial reasons, indicating a certain cost-performance ratio. Policy entry will positively impact the domestic substitution process in the autonomous driving field. Although currently, companies other than Horizon have limited project acquisition, in the long run, if policy changes occur, terminal customers will prepare in advance, and the domestic substitution rate will gradually increase, although the speed may be slower than in other fields.
7. Discussion of Specific Chip-Related Issues
Value and Substitution of TI Analog Chips in Pure Electric Vehicles: If a 200,000 yuan pure electric vehicle uses all TI analog chips, the value is approximately $600. If domestic substitution is not considered, about 90% of the non-U.S. foreign manufacturers can replace them, but verification and updates take time. If there are no changes to the controller design, it can be completed in about 6-9 months; if changes are involved, the time will be extended.
Common Application Scenarios of TI Chips in Vehicles: TI chips are widely used in vehicles, primarily as a supplier in power systems, with significant usage in steering, braking, sensor drives, relays, and overall vehicle loads (such as lights, air conditioning, heating devices, etc.). In signal products, TI covers a range of products, including isolation interface operational amplifiers, standard CAN commands, simple operational amplifiers, and more differentiated products like high-speed signal chains, analog front ends, and Ethernet.
Q&A
Q1: Can you summarize the current certification status of imported chips under import tariffs from an industry perspective and whether there is potential for exemptions?
A1: From the perspective of the chip or integrated circuit industry, there has previously been some ambiguity in the definition of the country of origin or origin. The usual practice was to consider the production location of the fully packaged chip, i.e., the location of the packaging and testing factory, as the country of origin. However, after the latest customs tariff changes, chips must now be certified based on the wafer fabrication location. If customs strictly enforces this, there is little operational space, as chips have very complete and clear traceability information, allowing visibility into the specific factories and even batch times. It is difficult to manipulate this on the outer packaging or customs declaration. However, due to the rapid pace of policy changes, the U.S. has exempted some products from equivalent tariffs, including chips. According to the principle of reciprocity, China may also grant equivalent exemptions for some products imported from the U.S., which may have a positive effect on the actual implementation of tariffs in the short term, but it still depends on subsequent policies.
Q2: Will there be any actual new changes in the next 1-2 weeks, and should we continue to observe?
A2: According to the current customs policy, integrated circuits are certified based on key links, i.e., the wafer fabrication location. Regarding the situation mentioned about changing the definition of origin based on business value, such as if the added value or output in non-wafer links reaches a certain percentage, it is more directed at other products within the semiconductor industry with different tax codes, such as diodes, power devices, transistors, etc., which involve more packaging and welding processes, rather than chips (such as analog chips, mixed-signal chips, etc.). Currently, the definition of chips is relatively clear, but how policies will change is uncertain, so it is difficult to determine whether there will be actual new changes in the next 1-2 weeks; observation is still necessary.
Q3: Can you break down the core chip value required for different automotive segments such as engines, three electric systems, and cockpits, and briefly summarize the domestic substitution degree?
A3: Taking a 400V electric architecture new energy vehicle as an example, the total value of electronic chips (digital or analog) in the vehicle is approximately $2000. By application area, the chip value in the cockpit and autonomous driving domains is relatively high, possibly approaching or exceeding 25%, close to 30%; traditional chassis and power domains (including the three electric systems) can account for about 30%; the body domain accounts for about 15%. In terms of domestic substitution, general power supply chips are used in all controllers, and there are basically alternative models or solutions available domestically. In the signal chain, some relatively simple operational amplifiers, comparators, and simple protocol chips (such as LIN chips) have foreign solutions but low technical barriers. The main technical barriers are concentrated in the following areas: first, digital processing-related, such as high-end complex MCUs with high functional safety requirements, and cockpit and autonomous driving domain control processors, where foreign solutions currently occupy the main share; second, in analog chips, high-speed signal chains (such as SerDes chips) and specific application analog chips (such as high-voltage isolation in the three electric systems, analog front ends for BMS) where foreign companies have a certain lead; third, some products limited by processes, such as high-temperature drives and some motor drives, although there are domestic solutions, the current share of foreign solutions is larger in terms of maturity and feasibility. In terms of monetary division, about 70% of analog chips have domestic alternatives, while the remaining 30% have low feasibility for domestic substitution in the short term; about 50% of digital chips are still dominated by foreign companies.
Q4: If the policy is implemented, how much additional value will it add to vehicle manufacturing, and how long will it take to achieve domestic switching? Which parts cannot be switched?
A4: If the policy is implemented, considering only the analog chip portion, about 70% of the products can be replaced. These products have mature mass production capabilities and have been validated or mass-produced in some automotive terminal customers, holding a certain market share. This portion of products is feasible from the perspective of solution maturity, but switching to customer product designs requires following the objective processes of the automotive industry, such as new solution switching, change verification, and reporting to OEMs, which may take 6-9 months at a fast pace. If market demand is urgent, the time may be shortened, depending on the willingness of TI and OEMs to expedite the special release or acceleration of change verification. Among the remaining 20%-30% of products, nearly two-thirds have domestic solutions, but there are few mature mass production cases, and the risk of customer switching is high, requiring suitable opportunities or policy support to proceed; the other one-third of products have no equivalent functional replacement products domestically, and product development may still be ongoing. Compared to differentiated products from TI or ADI, there may be a generational gap, and this type of product may take at least 2-3 years to gradually catch up.
Q5: If we categorize automotive enterprises into joint ventures, independent, and new forces, which type of enterprise is leading in chip localization?
A5: In terms of localization rates, under normal circumstances, some leading automotive enterprises can achieve over 20% localization for domestic analog chips, which reflects the approximate level of terminal manufacturers. State-owned or central enterprise-backed companies, such as FAW, SAIC, GAC, Changan, and Dongfeng, have localization requirements. They do not require all mass-produced models to reach a fixed localization rate but choose specific models to require fully domestic solutions for some major controllers, with a gradual increase in certain proportions. Among these companies, some models may need to achieve a localization rate of 70%-80%, with the overall localization rate close to 30%. General private enterprises, such as BYD, Chery, and Geely, do not have particularly stringent localization requirements but consider supply chain security for domestic backup and will recommend domestic chip selection to suppliers. BYD is more focused on introducing domestic suppliers to force cost reductions, and these companies’ localization rates are close to the industry average of about 20%. Among new forces, except for Leap Motor, most do not pay much attention to localization. They pursue high-performance solutions in autonomous driving and entertainment functions and are still highly reliant on foreign chip-dominated architectures, with localization rates relatively low, such as Weilai and Xiaopeng having localization rates just over 10%. Leap Motor follows a model similar to BYD, prioritizing domestic and cost-effective products, with faster localization progress. Joint venture companies have no inclination towards localization under cost and market logic, and unless domestic passenger car systems have selected domestic chips, they may make recommendations, but there are no localization rate requirements within the joint venture system, and the level of domestic penetration is below the industry average, at about 10%.
Q6: How significantly are leading international chip suppliers (such as Cypress, NV, Qualcomm, etc.) affected by this event? How much impact does it have on companies like TI? What alternative strategies do they have? How do they respond to import tariffs?
A6: For leading international chip suppliers like Cypress, NV, and Qualcomm, due to manufacturing considerations of supply chain costs, many of their products are produced in the U.S., but more are produced in non-U.S. locations. For example, Nvidia has some production in the U.S. but more in Asia (especially TSMC). Companies like MPS that produce analog chips have more production in Asia. According to current policies, the impact on them is quite limited and will not face direct shocks. For companies like TI, which is an IDM enterprise, about 80% of its analog chips are produced, with 70%-80% of the analog chips fabricated in its own U.S. factories, especially new products using the latest 12-inch production lines in the U.S. Theoretically, the revenue that may be affected accounts for about 60% of TI’s total revenue. TI’s response strategies include waiting for the policy to be implemented, as policy changes are rapid and uncertain regarding whether there will be new changes; secondly, making backups. TI is a deeply integrated IDM enterprise and is unlikely to outsource analog products to other foundries. It may transfer products with feasible processes to its other wafer fabs, such as the 8-inch factory in Germany, TI’s Chengdu factory (which is newer and integrated), and two factories in Japan. However, these factories cannot fully take over production or product lines from the U.S. because the factories outside the U.S. are all 8-inch, and transferring some products from 12-inch to 8-inch will increase costs by 30%, losing cost advantages and reducing commercial value. Additionally, some complex analog products made in the U.S. have high process requirements and are difficult to produce in 8-inch factories. Overall, about 50% of TI’s products can feasibly be transferred to non-U.S. factories.
Q7: Where are the main fabrication locations for certain chips (such as the ones mentioned in the question)? Will they be affected by import tariffs?
A7: Taking TI’s cockpit SoCs, MCUs, RF, Bluetooth, and other large digital chip categories as examples, over 80% are currently outsourced, primarily to foundries in Korea, with some production at TSMC. The main fabrication locations for DI8 and TDS are in Korea and Taiwan. Although TI previously acquired a factory in Utah, USA, for some digital products, it is still in the management process and has not fully transitioned. Therefore, about 70%-80% of TI’s digital products, including large SoCs and relatively small MCUs, are fabricated outside the U.S., and they should not be significantly affected by tariffs.
Q8: Is the previously mentioned localization rate of automotive chips an overall estimate of all chips? What principles does the state consider for chip tariffs?
A8: The previously mentioned 20% localization rate for automotive chips is a general estimate for all chips. The principles the state considers for chip tariffs include the principle of reciprocity, such as when the U.S. imposes reciprocal tariffs on China and exempts certain products (including chips), China would normally also reciprocate by exempting similar products. Secondly, from an industrial perspective, in the automotive market, U.S. chip manufacturers (both analog and digital) hold a significant market share. If the policy is implemented and has a large impact, it may affect about one-third of the entire vehicle. Although there are alternative solutions, transferring costs to terminal manufacturers is a difficult decision, and once tariffs are imposed, the supply chain would need to be completely overhauled. Therefore, the state will not adopt a one-size-fits-all approach for U.S. suppliers whose products are commercially mature, have leading advantages, or cannot be replaced domestically for at least 3-5 years. In the short term, if the U.S. does not strictly enforce chip tariffs, China may temporarily allow exemptions.
Q9: How does the current state and mindset of automotive enterprises differ from the chip shortage in 2021? From a neutral perspective, which areas will see an increase in domestic substitution rates as a result of this round?
A9: Compared to the chip shortage in 2021, the current state and mindset of automotive enterprises have the following differences: first, there is more experience in responding, as previous domestic substitution solutions have matured and been validated in mass production vehicles; second, there is more experience in channel management, as many automotive enterprises now communicate directly with chip manufacturers for regular deliveries, whereas previously they relied more on agents or suppliers, leading to delays in information transmission. Additionally, many automotive enterprises now have their own dealer and supplier channels for extra stockpiling, allowing them to rely on their own means for temporary responses during chip shortages rather than solely depending on external sources. From a neutral perspective, this round will lead to increases in domestic substitution rates in the following areas: first, mature general components, such as general power supply chips, relatively simple low-speed signal chips, and general logic chips, where domestic manufacturers are not far behind TI or foreign solutions, but previously could not be prioritized due to cost control. If there is a policy push for domestic substitution, these products will receive more preference and support, potentially approaching a 50-50 ratio; second, some products previously monopolized by U.S. companies, such as high-speed signal chain service products, analog front ends for BMS, and some MCU-specific chips, may accelerate the introduction of domestic alternatives for verification and switching due to geopolitical considerations, even if domestic alternatives are not mature.
Q10: Will this event substantially impact the speed of domestic substitution in the cockpit and autonomous driving domains? Will it promote the share of domestic chips in the cockpit?
A10: In the cockpit domain, this event will have a relatively limited impact on the speed of domestic substitution. Currently, the leading solutions in the cockpit are primarily from Qualcomm, and there are few domestic solutions that can compete directly with it, making short-term domestic substitution opportunities difficult. Although companies like Chipone exist, many projects are driven by domestic political requirements. In pure commercial competition, Qualcomm has an advantage, and terminal manufacturers are quite reliant on Qualcomm solutions, so short-term domestic substitution opportunities are minimal. Moreover, Qualcomm has a large scale in the consumer sector, allowing it to minimize tariff impacts and express its commitment to the Chinese market. In the autonomous driving domain, there is some room for domestic substitution. Compared to the cockpit, there are relatively more options available in the autonomous driving field, such as Horizon and Black Sesame, which have a smaller gap compared to Nvidia. Some domestic solutions have been chosen by customers purely for commercial reasons, indicating a certain cost-performance ratio. Policy entry will positively impact the domestic substitution process in the autonomous driving field. Although currently, companies other than Horizon have limited project acquisition, in the long run, if policy changes occur, terminal customers will prepare in advance, and the domestic substitution rate will gradually increase, although the speed may be slower than in other fields.
Q11: If a 200,000 yuan pure electric vehicle uses all TI analog chips, what is its approximate value? How much of it can be replaced by non-U.S. foreign manufacturers? Can it be implemented in 6-9 months? What are the common application scenarios for TI in vehicles?
A11: If a 200,000 yuan pure electric vehicle uses all TI analog chips, its value is approximately $600. If domestic substitution is not considered, about 90% of the non-U.S. foreign manufacturers can find alternative products. Regarding the question of whether it can be implemented in 6-9 months, if there are no changes needed in the controller or surrounding design, it is possible within that timeframe. This time is mainly used for verification and testing of changes, and reporting to the OEM, which must conduct changes and testing on the entire vehicle before approval. However, if changes to the layout of the controller are involved, the required time will be extended. TI chips are commonly used in various scenarios in vehicles, including sensor-related applications, steering, braking, and more. From an application perspective, whether it is small sensors or large core power systems, chassis, autonomous driving, or cockpit processors, TI chips are present. In power systems, TI is currently the largest supplier. In specific application scenarios, such as steering, core power, and body systems involving motor and valve external sensor drives, TI has a significant presence; in relays and overall vehicle loads, such as lights, air conditioning, and heating devices requiring high and low side drives, TI also has a considerable share. Additionally, in signal products, such as isolation interface operational amplifiers, standard commands, traditional operational amplifiers, and more differentiated products like high-speed signal chains, analog front ends, and Ethernet, TI has products covering these areas.
Q12: What are the scale thresholds required for self-research and self-manufacturing of analog and digital chips?
A12: In the analog chip field, according to the current industry division, it is quite difficult to achieve self-research and self-manufacturing regardless of the scale. Taking BYD as an example, it is a large company with a semiconductor division, but its support in the analog field is relatively limited. For power devices, many automotive manufacturers are either self-operating or investing in factories, and currently, it may require close to a million units to have a practical effect. However, for analog chips, due to larger investments and more third-party suppliers available, it is generally not feasible for automotive manufacturers to invest in analog chips in most application scenarios. For digital chips, such as higher-end SOC chips, automotive manufacturers investing resources are more common among new forces. This is not necessarily to save costs, as short-term investments are still considerable. Generally, it may require a scale of 500,000 to 1 million units to have some practical significance. New forces like NIO, Xiaopeng, and Li Auto have been early in self-research of large chips, while other manufacturers have relatively less involvement. Overall, a scale of around 1 million units is generally required to have some practical significance.
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