China Takes Next Step Toward EV Dominance by Betting on Domestic Chips

China aims to dominate the electric vehicle (EV) industry by controlling the supply chain for the semiconductors that power them. Seeking technological self-sufficiency in a sector that accounts for nearly 10% of its national GDP, the country has urged its manufacturers to win the race for EV semiconductors.

It’s a large-scale plan. According to Nikkei Asia, major Chinese automakers—including SAIC Motor, BYD, Li Auto, and Geely—are preparing to launch models equipped with entirely Chinese-manufactured chips.

Starting in 2026, at least two Chinese companies are expected to mass-produce semiconductors for the auto industry. Some moves are already underway: Xpeng and Nio are betting on in-house chips for their latest electric vehicles. On June 13, Xpeng released the G7, the first Chinese car to replace Nvidia chips with its own—promising three times the performance.

2027 is a key year. With the start of mass chip production, China has set its most ambitious goal yet: to manufacture 100% of the semiconductors in its cars domestically by 2027. The Chinese Ministry of Industry and Information Technology is supervising the project and reportedly meets regularly with manufacturers to track adoption rates for domestic chips.

What’s being done? Xpeng recently announced its Turing AI chip, which it says has triple the computing power of Nvidia’s Orin chip. It’s one of the boldest responses to Nvidia so far. Xpeng hopes companies such as Volkswagen—its partner in China—will eventually adopt the chip.

Other Chinese manufacturers, such as Nio, have introduced their Shenji NX9031 chip to power autonomous driving. The problem? It was manufactured using a 5-nanometer lithographic process, which means one thing:

External agreements. China is racing to improve its semiconductor capabilities. The country is nearing the ability to produce 5-nanometer chips, and SMIC expects to reach 3-nanometer processes by 2026. But for now, foreign rivals remain more advanced.

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That’s why companies like Nio are turning to external partners. They haven’t revealed who manufactures the Shenji chip, but its 5 nm process suggests it isn’t made in China. Xiaomi, for example, partnered with TSMC to make its Surge 01—the first smartphone chip that competes directly with Apple’s A18 Pro and Qualcomm’s top-tier processors. Xiaomi has announced plans to bring its chips to cars, raising the question of whether it will continue with TSMC as its ally.

China can dominate this industry. Three pillars largely determine the success of a globally competitive electric vehicle:

• Batteries (range and charging)
• Price
• Software (operating system, cabin features, etc.)

At the 2023 China Electric Vehicle Forum, the Institute for Market Economy Studies revealed that China’s dependence on foreign auto chips was nearly 95%. Car chips are highly diverse—covering microcontrollers, memory, sensors and more—and many can already be produced with China’s current lithography tools.

One key point remains. Major suppliers of car chips now include Huawei, BYD Semiconductor, and STMicroelectronics. With its push for semiconductor dominance, foreign manufacturers adopting Chinese software, and China leading in battery tech, the country has the ingredients to eventually dominate the industry.

It’s a conquest inside and out. China is waging this battle both domestically and globally. The country is poised to challenge international markets—Europe, for instance, is already feeling the impact.

China no longer looks to the West as a model. Its new auto leaders are competing with their own identity and clear advantages in areas where other automakers have fallen behind. Chinese brands also show a sharper understanding of consumer demands than their counterparts.

Image | Joshua Fernandez (Unsplash)

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