The automotive chip market has been experiencing a persistent downturn that has raised significant concerns as we step into 2024. Major industry players, such as NXP, Infineon, Renesas, and STMicroelectronics, have reported a general decline in their financial performance, reflecting the ongoing struggles within the sector.

In response to the prevailing market challenges and mounting inventory pressures, leading manufacturers have begun to implement various strategic measures. Many are resorting to workforce reductions and ongoing structural cost optimizations as their primary tools to counter these adversities.

In a notable move, STMicroelectronics is considering reducing its workforce by approximately 6% through early retirements and natural attrition. Reports suggest that the total layoffs could reach between 2,000 and 3,000 employees, predominantly focused on their operations in Italy and France, as they confront troubling revenue figures.

Similarly, Renesas Electronics plans to downsize, with expectations to cut less than 1,000 jobs globally alongside scrapping pay raises in 2024, including modifications to executive compensation. The company also disclosed in its financial report strategies aimed at cutting operational costs by optimizing production processes, reducing raw material procurement expenses, and enhancing capacity utilization. These measures are directed towards reallocating funds into high-return R&D projects, thus fortifying the company’s resilience in a sluggish market.

NXP has opted for a more surgical approach, accounting for a 5% global workforce reduction that translates to around 1,800 positions, aimed at streamlining non-core departments while prioritizing more valuable R&D teams. NXP’s president and CEO, Kurt Sievers, emphasized the importance of concentrating on controllable factors despite the challenging market backdrop. He remarked on their dedication to executing robust operational strategies and managing cash flow effectively, all while striving for a soft landing as they push forward with their growth initiatives.

Although the automotive market’s demand remains generally weak, there lies potential for revitalization through rapid developments in the fields of electric vehicles (EVs) and autonomous driving technologies, which could bring new growth prospects to the industry.

Performance-wise, key players have reported underwhelming results, showcasing the burdens imposed by the still prevailing market conditions. NXP, for instance, posted an annual revenue of $12.614 billion in 2024, marking a 5% decline year on year, with net income dropping to $2.522 billion, a 9.83% reduction. The automotive sector, which constitutes a significant portion of NXP’s sales, recorded a revenue downturn of 4%, falling to $7.151 billion.

Infineon has revealed similarly disappointing figures, with its fiscal 2024 revenue reaching €14.955 billion, down 8% year on year, despite a modest 2% growth in automotive business. While there has been an increasing interest in the electric vehicle market, broader cyclical adjustments and inventory depletion pressures have hampered the overall performance throughout the fiscal year.

CEO Jochen Hanebeck of Infineon pointed out in his financial report that apart from the artificial intelligence sector, growth across other end markets has been lackluster, leading to postponed cyclical rebounds. The ongoing inventory adjustments make it difficult to predict demand trends in the upcoming quarters accurately.

Renesas also faced a revenue dip of 8.2%, totaling ¥1.35 trillion, with operating profits plummeting by 42.9% to ¥222.977 billion. Despite a 6.4% growth within its automotive business, anticipated profits declined, suggesting a setback in profit margins.

Renesas has attributed its revenue decline to weak demand in industrial and infrastructure sectors, while its operating profit setbacks align with reduced factory utilization and weakened product lines, compounded by rising R&D expenditures.

STMicroelectronics seems to be struggling the most dramatically, as it reported a staggering 23.2% decrease in annual revenue, falling to $13.27 billion, significantly impacted by a 14% drop in automotive-related revenue, which hit $3.32 billion. This resulted in a dramatic 63% decrease in net profits, down to $1.557 billion.

President Jean-Marc Chery remotely pointed fingers at both the inventory adjustments in the industrial and automotive markets as well as the continued soft demand within the European region as the primary culprits behind the revenue decline.

Looking ahead, despite the overarching market bleakness, the companies are eager to capitalize on potential incremental opportunities presented by new energy and autonomous vehicles, redirecting their focus toward promising technological advancements.

The development of new energy vehicles appears to have reached a more stabilized growth phase. Although the growth rate is slowing, innovations in smart technologies are now becoming central to the evolution of these vehicles, leading to sustained demand for high-performance chips.

The acceleration of autonomous driving technology implementation also generates new demand for advanced chips. For example, the progressive commercialization of autonomous transportation services such as robotaxis necessitates enhanced computational capabilities to support complex algorithms and manage real-time data processing.

Moreover, the automotive sector is increasingly investing in end-to-end solutions and pure vision-based intelligent driving technologies, which will further elevate the demand for high-end automotive components such as advanced driver-assistance systems (ADAS) and lidar sensors.

Anticipating that growth from new energy and autonomous vehicles will drive their performance, many major firms are actively pursuing relevant acquisition strategies. For instance, NXP has underscored its commitment to the "software-defined vehicle" (SDV) space. Within a two-month window, the company has successfully acquired three firms, namely Austria’s TTTech Auto, America’s Aviva Links, and the recent incorporation of NPU company Kinara into its portfolio. NXP aims to boost its technical capabilities in the intelligent automotive sector by shifting its focus toward higher-value domains.

Likewise, Renesas made a strategic acquisition of electronic design enterprise Altium last year, aligning itself with a diversified business landscape that positions them favorably for market resurgences.

Additionally, semiconductor manufacturers are stepping up their commitments towards third-generation semiconductors, particularly aimed at the new energy sector. Renesas' long-term supply agreement, signed in 2023 with Wolfspeed—known for its silicon carbide materials—enhances its competitiveness in the high-end chip domain.

Infineon, too, is working to expand its production capacity of silicon carbide and gallium nitride power semiconductors, setting out to establish the world's largest 200mm (8-inch) silicon carbide power semiconductor wafer fab. Their plans indicate a target of surpassing €1 billion in silicon carbide-related revenue by 2025, with an ambition to capture 30% of the global market by 2030.

As we navigate through these challenges, the market has shown tentative signs of recovery, yet it continues to confront multiple hurdles in the short term. Jochen Hanebeck remarked that Infineon is preparing for a slow business growth trajectory as they head into fiscal 2025. The company is also implementing structural measures under its Step Up plan to enhance competitiveness and leverage its innovation capabilities. This positions them to strategically embrace the restructuring of growth drivers for emerging economic recovery trends.

Industry experts foresee a polarized future for the automotive chip market. General-purpose chips may continue to face inventory hurdles, whereas demand for power chips and high-end memory chips is likely to persist. With the intelligence upgrade of new energy vehicles, the demand for advanced chips could ramp up even further, serving as a catalyst for market resurgence.

Analyst Chen Hongyan from TrendForce shared insights, noting that the adoption of power chips in new energy vehicles exceeds that of traditional fuel vehicles. Many brands focusing on or primarily developing electric vehicle models are displaying a proactive stance towards embracing new technologies in applications such as smart driving and intelligent cockpits, cementing the view that new energy vehicles are becoming the main growth engine for automotive chips.

With approximately 65% of the global new energy vehicle market stemming from China, the local market's conditions are inherently correlated to the revenue performance of chip manufacturers. Leading international automakers are actively engaged in developing affordable pure electric models, with expectations that these will hit the market between 2026 and 2028, further stimulating overseas market dynamics.

At the same time, Chen Hongyan highlighted, while efforts to advance electrification by foreign manufacturers may seem sluggish, the drive for intelligent-based automotive solutions continues to gain momentum globally. This sector has emerged as a key battleground for chip manufacturers. The increasing complexity of the software and hardware functionalities required to support intelligent solutions escalates chip pricing. So even though semiconductor firms may face headwinds from waning sales in overseas new energy vehicle markets, they still stand to benefit from opportunities within the intelligent transformation landscape.