Beijing pushes to use China-made chips in its electric vehicles

Not long ago, almost all the chips in Chinese cars relied on manufacturing by foreign firms

- Liza Lin & Raffaele Huang

China isn't satisfied with becoming the world's dominant maker of electric vehicles. It wants the chips inside to be Chinese-made too. Not long ago, almost all the chips in Chinese cars relied on manufacturing by the likes of Texas Instruments and Germany's Infineon. Today, the use of homemade chips has risen to around 15%, say people involved in the industry, and it is poised to rise further.

Last week, the U.S. opened an investigation into China's production of chips made with mature technology that are often used in areas such as autos and defense. U.S. Trade Representative Katherine Tai said there was evidence China used "extensive anti-competitive and non-market means" to achieve self-sufficiency, and the Commerce Department has said subsidized low-cost Chinese chip makers might flood the global market and drive down prices.

Beijing is making little secret of its industrial policy, reasoning that controlling the brains inside the world's most important consumer product is too important to be left to market forces. It is setting targets for homegrown chips and supporting domestic chip makers through state semiconductor funds including a $47 billion one started in May.

Foreign companies in the car-chip business, which has annual revenue of more than $80 billion, face a choice of producing more in China or losing sales. Many are choosing the former, upending the lean and efficient global supply chain for chips.

"If the world wants to decouple, you can do China for China and non-China for non-China," said Texas Instruments' chief executive, Haviv Ilan, at a December investor briefing. "If the world stays open, and I hope it will, you can continue to have this diverse supply chain."

The U.S. and Europe are also promoting domestic semiconductor production. A 2022 U.S. law passed under President Biden is funding tens of billions of dollars in subsidies.