JW Insights: Packaging and testing, instead of wafer fabrication capacity, is the new blockade behind China’s automotive-grade MCU supply chain constraints
Chinese article by 李杭森
English Editor 张未名
08-22 17:28

By Kate Yuan

The packaging and testing of automotive-grade MCU have become the new challenging part of the whole supply chain in China as the wafer fabrication capacity is gradually easing, according to a JW Insights report.

Many automakers including Xpeng, Li Auto, Geely, GM, Nissan, and Toyota have reduced production because of the chip shortage over the past two years. Domestic substitutions have become a common choice, as the delivery time of NXP, Microchip, ST, and Infineon all take longer one year, bringing opportunities for domestic automotive-grade chip suppliers.

China Association of Automobile Manufacturers (CAAM) forecast that the average number of chips in each vehicle in China will grow rapidly. By 2025, a traditional vehicle will use 934 chips, and for new energy vehicles, the number will be 1,459. It is estimated that the domestic demand for automotive chips will reach 35.4 billion in 2025.

However, due to the higher technological threshold, lack of talents, difficulty in market development, and large capital input, domestic automotive-grade chipmakers have been making slow progress.

MCU is a crucial part of automotive chips, but 80% of the market share is taken by international players such as Renesas, NXP, ST, Infineon, Microchip, and TI.

Ye Shengji, chief engineer and deputy secretary-general of CAAM, said, “MCUs are in desperately short supply among all kinds of chips in China, and domestic MCU companies are the weakest in the industry.”

Although some local chip makers have achieved breakthroughs in mass production of automotive-grade MCUs, they are mainly for low-end applications such as automotive wipers, lights, windows, remote controls, ambient light control, and dynamic running lights which require less safety performance.

Good news is that more and more domestic chipmakers have headed into the mid- and high-end markets in recent years. However, obstacles are emerging from the supply side.

“China’s IC design companies need to get the approval from relevant U.S. departments for the tape-out of automotive-grade chips in major international fabs. It usually takes quite a long time,” a well-known domestic MCU supplier told JW Insights.

Even if the approval is successfully obtained, the production capacity may not be guaranteed for the lower quantity. Plus, the gloomy shipments of domestic MCU providers, the supporting supply chain and the entire industry ecosystem have not been able to scale up.

Up to now, domestic foundries have improved a lot compared to previous years. China's two leading foundries Huahong and SMIC have completed the automotive-grade certification, and launched the automotive-grade wafer mass production process platforms.

Huahong's 0.11-micron automotive-grade process platform has achieved mass production, and R&D for other process nodes are being stepped up. Mass production for Huahong's 55-nanometer and SMIC's 40-nanometer automotive-grade process platforms are scheduled to start in the next two years.

Domestic automotive-grade MCU makers are gradually increasing production capacity, and the available process platforms will become more and more abundant. However, packaging and testing face greater challenges.

A business insider pointed out that “Domestic foundries in the automotive-grade MCU supply chain is not the most restricted part. At least the foundries are expected to provide production capacity in 2023. But it is difficult to answer when the packaging and testing could have market competitiveness.

The products require the ambient temperature of 125 degrees, 150 degrees and even 170 degrees. These are quite stringent standards for the manufacturing process and materials. Only long-term process adjustment can improve the temperature tolerance.

Many domestic packaging and testing factories have not undertaken long-term and large-scale packaging for automotive-grade products, and it is impossible to find the optimal solutions between various parameter combinations without accumulated production data and failure analysis.

The high investment has also discouraged many small and medium-sized packaging and testing providers in China. “The verification cycle of automotive-grade products is very long, which requires high technical foundation, material reliability and capital input. It also needs close partnership with IC design companies and downstream car companies,” the industry insider said.

“The high-end automotive-grade products in China’s mainland have to turn to the Taiwan region for packaging and testing, and our packaging and testing factories are still limited to the sample stage, ” he added.

In cost control, there is still a more obvious gap compared with international players. Domestic packaging and testing companies still use gold wire in vehicle-level packaging, the cost of which is very high. International manufacturers have begun to replace it with copper wire, which can ensure reliability at lower cost.

In addition, the production quantity of automotive-grade chips needs to start with at least 1 million units under complete quality tracking to achieve reliability, low cost, and market competitiveness. It is an extremely costly process.

Therefore, cost, reliability, and failure rate have become paradoxes. It is difficult to balance quality and cost if one chooses domestic packaging and testing companies, said the JW Insights article.

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