Sales of international combustion engine autos and electric vehicles will resume positive growth in 2021.

Although not the largest end-market for semiconductors, automotive has been one of the fastest growing. There are several reasons:

  • The increase in unit sales of autos as more safety and convenience features are added to a car
  • The increase in semiconductor content with each model of autos
  • The increase in semiconductor content in moving from conventional to EVs
  • The increase in semiconductor content with Advanced Driver Assistance Systems (ADAS)

That was the thinking until early 2019 when the world economies were negatively impacted by the U.S.-China Trade issues, bringing many Asian and European countries to the brink of recession. The other shoe fell in 2020 with COVID-19. As a result, unit sales of conventional autos dropped and EV sales tumbled in China and the U.S. The COVID-19 pandemic also increased headwinds for ADAS. Most new vehicles now include some level of advanced driver assist systems such as adaptive cruise control, automatic brakes, blind-spot monitoring, and parallel parking), which is paving the way for fully autonomous vehicles in the future.

Automotive Semiconductor Market

Chart 1 shows my estimates of market share for all the companies making up the $29.8 billion in revenue for 2019. NXP Semiconductors (NXPI) led the market with an 11{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} share, followed by Infineon (OTCQX:IFNNY) at 10{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446}, Renesas (OTCPK:RNECY) at 9{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446}, Texas Instruments (TXN) at 8{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446}, STMicroelectronics (STM) at 7{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446}, and Bosch (OTC:BSWQY) and ON Semiconductor (ON) at 5{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446}.

The acquisition of CY will propel Infineon to the top of the automotive semiconductor market in 2020.

Chart 1

Conventional vehicles contain an average of $350 value of semiconductor content while hybrid electric vehicles can contain up to 3,500 semiconductors and valued at $1,000. On average, an EV contains $705 in semiconductors and a PHEV contains $715.

Chart 2 shows the different types of components required for this increasingly complex set of functionality, and companies offering a wide range of specialties are developing products for these applications. These include multi-channel receivers and transmitters for radar solutions to help prevent crashes; sensors, microcontrollers, and RF transmitters in tire pressure monitoring systems; and analog and digital signal processor (DSP)-based AM/FM receivers for car entertainment systems. For next-generation green and autonomous vehicles, microcontrollers.

Chart 2 shows that in 2019, Application Specific ICs represented 32{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} of the total revenues, followed by Discrete ICs and Microcontrollers (MCU).

Chart 2

Table 1 shows these semiconductor companies and the percentage of their sales to automotive end markets in 2019. Renesas is highest at 57{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446}, followed by NXPI and IFNNY. Cypress Semiconductor (CY) followed. Cypress Semiconductor and Infineon merger closed on April 16.

Microchip Technology (MCHP) and Micron Technology (MU), each of which held a 2{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} revenue share of the semiconductor market, have 18{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} and 5{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446}, respectively, of their sales to automotive end markets.

Automotive Vehicle Market

Table 2 shows shipments of passenger ICE (internal combustion engine) vehicles are projected to drop 9.1{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} in 2020 following a drop of 9.9{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} in 2020 before rising 6.0{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} in 2021.

Automakers are selling an increasing share of hybrid and electric vehicles compared with traditional internal combustion engine vehicles. Higher emissions regulations and safety standards, as well as increased consumer demand for comfort, are accelerating the evolution of the electric vehicle.

Total EV shipments increased just 8.6{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446}, from 2.09 million in 2018 to 2.27 million in 2019. This contracts to an increase of 70{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} 2016-2017 and 90{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} 2017-2018.

Growth in 2019 varied considerably by region, with Europe growing 43.7{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} YOY while China grew just 2.9{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} and the U.S. dropped 11.5{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446}, according to our report entitled “Global and China EV Batteries and Materials: Technology, Trends and Market Forecasts.”

Chart 3 presents my forecast of EV and PHEV shipments from 2017 to 2022. Total shipments will grow from 1,166,000 vehicles in 2017 to 4,355,000 in 2020 representing a CAGR (compound annual growth rate) of 30.1{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446}.

Chart 3

Investor Takeaway

2020 will be a down year for automotive semiconductors, with revenues down 2.8{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446}. But in my previous Marketplace article entitled “Applied Materials And Lam Research: Why I’m Lowering Revenue Growth To -6.9{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446} In 2020,” I forecast the overall semiconductor market growth at -6.1{d93457022679712214ff8a8035fa266341f9634f2c93d5e609b1bbb089e8c446}, so, in fact, automotive semiconductor sales will fare better than the overall market.

However, it appears that Evercore doesn’t have the same perspective as I. Today, it cut NXP Semiconductors from Outperform to In-Line with a $100 target. The firm cited NXP’s “outsized” auto exposure, which poses a “meaningful downside risk to NXPI earnings estimates as well as a likely slow recovery.”

Sales of international combustion engine autos and electric vehicles will resume positive growth in 2021.

The acquisition of CY will propel Infineon to the top of the automotive semiconductor market in 2020.

This free article presents my analysis of this semiconductor sector. A more detailed analysis is available on my Marketplace newsletter site Semiconductor Deep Dive. You can learn more about it here and start a risk-free 2-week trial now.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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