Beijing Urges Chinese EV Makers to Prioritize Local Chip Procurement Amid Escalating Trade Tensions

In response to escalating trade tensions with the United States, the Chinese government has intensified efforts to strengthen its tech sector, particularly in semiconductor development. The Ministry of Industry and Information Technology (MIIT) has discreetly instructed EV manufacturers, including prominent names like BYD Co. and Geely Automobile Holdings, to significantly increase their procurement from local auto chipmakers. This move forms part of a broader initiative aimed at reducing dependence on Western imports and enhancing China's domestic semiconductor industry.

According to sources familiar with the matter, the MIIT has urged carmakers to expand their sourcing of homegrown components, setting an informal target for them to procure at least a fifth of their chips domestically by 2025. However, dissatisfaction has arisen over the sluggish progress towards this goal, prompting direct instructions from the ministry to prioritize Chinese chips whenever feasible. This directive effectively requires overseas chip makers to utilize local foundries, such as Semiconductor Manufacturing International Corp. or Hua Hong Semiconductor Ltd., for manufacturing their silicon.

Recent developments reflect Beijing's proactive stance in supporting its tech sector amidst U.S. efforts to impede Chinese chip development through sanctions and restrictions on advanced technology sales. The preference for Chinese chips not only impacts EV manufacturers but also poses challenges for foreign semiconductor companies like Nvidia Corp., NXP Semiconductor NV, Renesas Electronics Corp., and Texas Instruments Inc., which compete with local firms in supplying chips to the world's largest EV market.

While some Chinese automakers currently utilize components from various sources, including power management chips and microcontrollers, the directive could potentially disrupt existing supply chains. Notably, leading companies like BYD and emerging players like Nio Inc. rely on Nvidia processors for integrating functionalities in their connected vehicles.

Despite requests for comments, neither the MIIT nor representatives from BYD, Nio, and Geely responded. This silence underscores the sensitivity of the matter amid geopolitical tensions surrounding technological supremacy.

Beijing's push for a domestic chip industry aligns with its broader strategy to reduce reliance on foreign technologies and assert its leadership in critical sectors. The government's endorsement of local champions, such as Huawei Technologies Co., coupled with substantial investments in chip development, underscores its commitment to achieving technological independence.

However, Washington's concerns over data security risks associated with internet-connected Chinese cars, including EVs, could potentially lead to further restrictions on their sale in the U.S. Such measures would add another layer of complexity to the ongoing trade dispute between the world's two largest economies.

As China accelerates its efforts to strengthen its semiconductor industry, the global semiconductor landscape continues to evolve, with implications for both technological innovation and geopolitical dynamics. While Beijing aims to reduce reliance on foreign chips, the U.S. and its allies closely monitor China's advancements in semiconductor manufacturing, cognizant of their implications for global trade and security.