EVs are boosting demand for chips despite semiconductor manufacturers’ struggles

“We consume about 700,000 12-inch wafer-equivalents,” Karn Budhiraj, Tesla’s vice president of supply chain, said Wednesday, referring to the material that individual chips are made of. “We will need 8 million wafers,” he added, once the company reaches its target of 20 million cars. Tesla also said it was working on ways to use fewer chips per vehicle and didn’t expect chip-making capacity to be a barrier given the growth of that industry.

Chip managers say the growth in the number of chips going into cars is huge. As of 2021, the average car had about 1,200 chips, twice as many as in 2010 and that figure is likely to only increase, executives said.

Companies including the Dutch automotive chip company NXP Semiconductors NXPI 1.29%

NV, the German Infineon Technologies AG

IFNNY 1.64%

the Japanese Renesas Electronics Corp.

RNECY 5.49%

US-based analog devices Inc.

ADI 0.90%

and Texas Instruments Inc.

TXN 0.92%

recently reported rising sales in their auto divisions and issued a strong outlook for this year.

Marvell technology Inc.

MRVL -4.74%

CEO Matthew Murphy said Thursday that auto-related sales should grow more than 30% in the current quarter, even as the company’s overall sales are expected to shrink. The company’s auto-related chip sales could reach $500 million in the next few years, up from about $100 million today, he said.

NXP’s sales of car chips rose 25% last year, and the company said it expects growth of about 15% in the first quarter of this year. Renesas’ automotive business was up nearly 40% last year, and analysts expect more growth this quarter. Analog Devices, which derives nearly a quarter of its revenue from the automotive industry, reported 29% growth for that segment last year.

It’s not just the cars themselves that are becoming increasingly chip intensive; so is vehicle production, as manufacturers embrace more automation to address labor shortages and try to reduce costs, semiconductor executives said.

The boom in auto chips contrasts with sharp declines in other sectors for chip makers, whose products are moving into electronics that closely match consumer appetites. Americans have tightened their belts in recent months, worried about rising interest rates and stubbornly high inflation.

Intel Corp.

INTC 0.76%

the largest US chipmaker by revenue, reported a loss in the fourth quarter and expects another loss this quarter, hurt by declining demand for the personal computers in which its chips feature. Rival Advanced Micro Devices Inc. also struggles with the choppy PC market, where a recent Morgan Stanley estimate expects industry-wide shipments to decline 12.5% ​​this year.

Qualcomm Inc.,

QCOM -0.15%

known for its mobile phone chips, illustrates how some chip suppliers feel both sides of the market dynamics. The company reported an 18% decline in cell phone sales in its last fiscal quarter, while auto sales rose 58% to $456 million. Car chips account for about 5% of the company’s total sales.

The resilience of auto chips comes despite a historic decline in auto sales, which last year in the US were the lowest in more than a decade. Sales are being held back by supply chain issues, including a lack of chips essential for a new generation of cars with a range of digitally enhanced features, from driver assistance technology to automatic windshield wiper operation. Questions about demand have surfaced this year as consumers waver at high prices from dealers.

The increased digitization of cars means that even lower car sales are not reducing demand for car chips, says Kurt Sievers, CEO of NXP, one of the largest chip suppliers in the automotive market. Market share gains and the shift to electric vehicles have been enough to offset economic weakness and supply chain issues that have limited auto production, he said.

“It’s nice when [car production] growing, but we don’t need to grow to grow our automotive business,” said Mr. Sievers.

The moment when the executives of both chip and auto companies woke up to how interconnected their fortunes have become came during the pandemic. Supply chain disruptions led to a global chip shortage that left some automakers stranded on the production line with incomplete vehicles. Rivian Automotive Inc.

in its most recent earnings report, attributed its subdued sales outlook in part to chips supply issues.

Still, there are signs that that pressure is starting to ease.

According to analysts at Susquehanna International Group LLP, average lead times for chips, including many chips critical to automotive manufacturing, were about four days shorter in January than in the previous month, indicating an easing of restrictions. Lead times, which measure how long it takes to fulfill orders, are down for seven straight months, Susquehanna said, though the industry’s average lead time is still close to six months.

NXP’s Mr. Sievers said shortages eased as production grew to meet demand, and he did not expect the supply-demand imbalance to be resolved later this year or early next year.

Chip companies are generally preparing to add capacity, both to meet growing demand in the auto industry and to anticipate a recovery in other industries, such as PCs and smartphones. Texas Instruments said last month it would build an $11 billion chip plant in Lehi, Utah, and NXP has said it is considering expansion in Texas.

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Write to Asa Fitch at [email protected]