D2D China: China EVs are going (almost) Everywhere

Signs of life for China semis VC, immense EV momentum, but macro challenges are challenging.

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Noteworthy Items

Semis and Hardware

Inspur, China’s largest systems integrator, is forecasting a big drop in earnings in the second half of the year. They blame component shortages, but we wonder if there is anything else going on here, like a slowdown in overall IT and cloud spending in China.

Foxconn has big ambitions in India. They are building iPhone capacity, automotive assembly and a massive semis plant. Their semis plans went off course this month, when they exited their joint venture with industrial group Vedanta. Recreating South China’s electronics complex is going to happen in fits and starts, and take years. And there is no reason to assume India can “replace” China in the global supply chain.

A good overview of China’s semis packaging industry from an analyst on WeChat. Interesting as a background on the industry and a list of big players. Noticeably absent is much discussion of next generation packaging, which is going to be very reliant on the leading edge foundries. China has become the largest, but not dominant, geography for semis packaging. But this success story is starting to look very vulnerable as the global industry shifts.

A profile of semis industry leaders viewed through the lens of determining which Chinese universities provide the best semiconductor education. Shanghai Jiaotong University is a long-time leader in the field, but this is diversifying. Has anyone seen a comparable analysis for US universities?

Huawei seems to be entering every business from Cloud to automotive in a search for revenue. One area where they seem to be making real progress is licensing IP. This is one area where they have: 1) a lot to offer; 2) a deep familiarity with the wireless industry’s licensing practices (aka “Don’t hate the player, hate the game”); and 3) some protection from the US government in the form of global regulations around standards essential patents.

TikTok parent’s ByteDance has an internal chip design team that has been doing interesting work. The former leader of that team just launched a company with a pre-seed valuation of $100 million (!!!) targeting CPUs and AI acceleration (running on RISC V). Part of us is jealous that chip start-ups in China can raise at these valuation, and part of us is horrified to imagine actually building a company that grows into that valuation.

Last year, the pace of new semis company formation in China slowed dramatically. We used to track VC investments in this newsletter when we were seeing almost a deal a day. That went to zero, but now seems to be picking up pace again. Many of the companies we are seeing now seem to be designing advanced processors on advanced manufacturing nodes. We wonder what gave these companies the confidence that they would be able to maintain access to TSMC.

Martin Chorzempa has a good piece on what US sanctions mean for South Korea’s chip companies.

Automotive, Industrial and Macro-Ecnomics

Pekinology translated the speech of a former high-level official in the NDRC (China’s central economic planning agency). He gave this to a crowd of university students. It is long and we do not agree with much of his analysis, but it rare to get access to comments like this in simple language (as opposed to official jargon). Lots of talk about investing in technology and synthetic biology (a phrase that has been popping up a lot lately). Our chief critique is that he gets very oblique or falls back to slogans whenever he touches what is actually wrong with China’s economy today.

Caixin did a profile on the changes to China’s auto industry. Lots of competition behind all that growth. Also, lots of signaling about growing the domestic supply chain and reducing foreign dependence.

China continues to export its way out of its economic woes, with a growing share of the world’s manufacturing. This is largely the playbook that they have been running for twenty years, and it increasingly looks to be reaching its limits.

Audi is looking at buying EV technology from leading Chinese automaker SAIC. If it happens, it would mark a tectonic shift for the industry. Since Beijing Jeep opened in the 1970’s China has sought to import foreign automotive technology, but now the trend may be reversing. For those interested in China autos, we highly recommend following Sino Auto Insights, who recently hosted a webinar where they touch on this topic.

Automaker BYD’s CEO says China’s auto industry has entered the “Elimination Stage”. We agree that is coming, we are not certain that the round has actually started yet.

The market for luxury watches in China has fallen dramatically. Global luxury good makers have enjoyed a couple great decades of China growth. Could that be slowing? If true, it is likely a signal of some broader macro-economic changes. Or maybe people in China just got tired of wearing a quarter million dollars on their wrists.

Software and the Cloud

Chinese company’s are racing to copy fast follow Chat GPT and build their own Large Language Models. It will be tempting to write these all off as ‘copy-cats’, but one area where China’s companies have a clear advantage is rapid iteration on turning AI technology into usable products.

Tencent unveiled its High Performance Computing (HPC) cluster, probably based largely on Nvidia GPUs and Intel CPUs. Interesting timing given rumors that the US government is looking to cut off Chinese companies’ access to US cloud computing resources. We noted this was a major gap in the US government’s October restrictions.

US researchers conducted a deep dive on China’s Great Firewall software which censors Internet traffic. It seems both very creative and somewhat inconsistent.

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