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On September 24, at the International Semiconductor Executive Summit held in Wuxi, China, AlixPartners Partner and Managing Director Janet Tang presented on one of the mega-trends that will transform the semiconductor space in years to come. As electric vehicles (EVs) and software-defined vehicles (SDVs) proliferate globally, we’re witnessing a shift in the relationship between the original equipment manufacturers (OEMs) of these vehicles and semiconductor providers. 
This is leading to drastic changes in the global semiconductor supply chain—which is already facing disruption due to demand, the influence of GenAI, and deglobalization.
Chinese EV tendencies are at the heart of these shifts. According to the 2024 AlixPartners International Electric-Vehicle Consumer Sentiment Survey, 97% of Chinese consumers say their next automobile purchase is likely to be a battery-electric vehicle (BEV), compared to 43% of European and 35% of American respondents. Chinese OEMs in the EV space are ramping production to meet demand and hold significant advantages over their global competition.
According to the 21st annual AlixPartners Global Automotive Outlook, Chinese EV manufacturers can produce EVs 35% cheaper than U.S. and European counterparts, and have more than twice the vertical integration, streamlining operations. Even more important, these manufacturers can develop new products in one-third the time of traditional auto OEMs—in as little as 18-24 months compared to 3-6 years.
As SDVs become the next force in the auto industry, new automakers without the burden of legacy infrastructure are pulling ahead. Chinese NEV (new-energy vehicle) startups release 20 times as many OTA (over-the-air) software updates post-launch as Western automakers. By 2030, we estimate that Chinese OEMs will account for 72% of the vehicles sold in China and 33% of the global auto market—a 4x share growth outside of China.
What does this mean for the semiconductor industry? We see three major implications:
1. Headwinds amidst long-term growth
Semiconductor suppliers have added $25 billion worth of “just-in-case” inventory after pandemic-induced demand shortages. Chip markets are temporarily oversaturated—cautious enterprise spending and softening demand have led to record-high inventory levels that manufacturers and channel partners are struggling to offload.
From an automobile perspective, the margins that OEMs currently maintain will fade with price-capping regulations, increasing tariffs, and competition. The pricing pressures they face will trickle down to semiconductor suppliers as OEMs adjust for profitability.
2. Drastic changes to operating models
Chinese OEMs offer consumers newer technology and more innovative designs with a much shorter product refresh cycle. But this also requires a speedier sales and product development cycle for semiconductor suppliers that will now need to adjust their operating models to match the pace.
Commoditization is increasing across the semiconductor industry as more Chinese players enter the field. These players at first focused on less advanced legacy chips, but will be moving into more advanced, high-end technology nodes. Incumbent semiconductor players will need to rethink their product portfolio and go-to-market strategies to remain attractive to their target customer segments as competition heats up.
3. Additional capability requirements to capture growth
The proliferation of software-defined vehicles will lead to a shift in product offerings and the underlying semiconductor product technology. Heightened connectivity and sensor integration requirements to support the advanced computing capabilities of newer SDVs will necessitate different product portfolios—such as increased demand for system-on-chip (SoC) integrations that combine multiple functions.
With disruption, though, comes opportunity—and semiconductor manufacturers that strategically navigate these headwinds can thrive within this dynamic industry.
