How significant is TSMC's influence in the automotive chip market?

Tony Huang, special to DIGITIMES Asia 0


Automotive chips are estimated to register the highest CAGR in revenue from 2022 to 2027 among semiconductor application categories. What is the exact extent of influence TSMC will have in the automotive chip market? And why has its investment in establishing a wafer fab in Europe garnered substantial attention? These questions warrant a thorough research.

On August 8, TSMC announced that its board of directors has approved a maximum investment of US$3.8 billion to set up a joint venture – European Semiconductor Manufacturing Company (ESMC), in Dresden, Germany. ESMC will be 70% owned by TSMC, with Infineon, NXP and Bosch each holding 10% equity stake. The planned 12-inch wafer fab is slated for commercial production by the end of 2027, adopting 12/16nm FinFET and 22/28nm planar CMOS 12/16 FinFET process technology and focusing on chips for automotive and industrial control applications.

For TSMC, its revenue contribution ratio for automotive applications increased from 4% in 2021 and 5% in 2022 to 8% in the second quarter of 2023. The foundry saw its annual sales income from automotive chips grow 51% on year in 2021 and 74% in 2022, indicating strong growth momentum in this sector.

Digitimes Research has estimated that TSMC's revenue from automotive chips would still grow over 30% on year in 2023, despite a projected 10% decrease in its total US-dollar revenue for the year.

Among TSMC's top-15 customers, four are well known in the automotive and industrial chip market, namely NXP, STMicroelectronics (STM), Infineon, and Sony. Of them, Sony has already partnered with TSMC to establish a 12-inch wafer fab in Kumamoto, Japan. The foundry's joint venture fab with NXP and Infineon will further deepen its collaboration with key clients and automakers in Europe.

As far as TSMC's top-30 customers are concerned, their average gross margin calculated under non-GAAP accounting standards exceeds 50% based on their latest available financial reports. It is estimated that average gross margin for chip products manufactured by TSMC for its customers in 2023 will reach 55%

Influence in the automotive chip end-market: the untold story of TSMC

Usually, gross margins of automotive chips are lower than those of industrial control, data center, and networking infrastructure chips. For instance, Renesas reported a gross margin of 62.6% for industrial (including IoT) chips in the second quarter of the year, compared to 51.5% for automotive chips. If the gross margin data from automotive chip IDMs like NXP, STM, Infineon, and Renesas, their average gross margin for automotive chips is around 51.3%.

After contracting TSMC to produce chips, the automotive IDMs can still achieve an average gross margin of 51.3%. Assuming that wafer foundry accounts for 75% of a customer's cost of goods sold (COGS) (the remainder being packaging/testing and other product costs), this indicates that for every US$1,000 of contract production value provided by TSMC, its influence in the semiconductor market (the aggregated market value of chips from IDMs, fabless companies and system vendors like Apple and Cisco) is approximately US$2,738 (calculated as 1,000 divided by 48.7% and then divided again by 75%, roughly equal to 2,738).

It is estimated that TSMC's revenue from automotive chips in 2023 could reach U$5.4 billion. Using the influence factor of 1:2.74, the revenue translates to a value of US$14.8 billion for TSMC-manufactured automotive chips in the automotive semiconductor end market. This accounts for approximately 20.6% of the global automotive semiconductor market in 2023, higher than the market shares of 11-12% registered in 2022 by each of the world's top-2 automotive chips vendors Infineon and NXP.

TSMC's automotive chips are resold by its customers to carmakers or tier1 components suppliers, and thus the company doesn't have a market share in the terminal automotive chip market. However, TSMC holds a no less significant position in the end market than the two largest automotive chips vendors.

On another front, why did STM, one of TSMC's top-15 customers and the world's third-largest automotive chip supplier, not participate in this joint venture factory project in Germany? The reason is that STM has signed an investment memorandum of understanding with GlobalFoundries (GF) for a joint 12-inch wafer fab in Crolles, France. Additionally, GF already has a 12-inch wafer fab in Dresden, Germany, with a cumulative investment exceeding US$12 billion.

TSMC's revenue from automotive chips foundry reached US$1.25 billion in the second quarter of 2023, up 38% on year and compared to GF's corresponding revenue of only US$245 million. But GF's second-quarter revenue from automotive chip foundry services tripled from the US$82 million of a year earlier, showcasing a rapid catch-up trend that deserves attention.

Author's bio:

Tony Huang now serves as consultant and director at Digitimes Research. He gets his master's degree from the Graduate School of the Industrial Engineering and Engineering Management at the National Tsing Hua University. His research areas include semiconductor market, display industry, and emerging technology trends. Huang believes that technology is a significant driving force behind human societal progress.