The electric car competition in China is increasingly centered on technological advancements, with companies emphasizing their chip capabilities.

• Chinese electric car companies are now competing on advanced technology powered by semiconductors, beyond price wars.
• According to Tu Le, founder of Sino Auto Insights, it is challenging to highlight the superiority of one's product when competitors use the same silicon to power their infotainment and intelligent driving systems.
• In recent years, Nvidia has established a $300 million automotive chip business, with several major Chinese electric car companies as partners.

Chinese electric car companies are intensifying their competition not only on price but also on technology features, particularly those powered by chips, such as the driver-assist function.

The company has announced that their in-house designed auto chips are ready for production. In recent years, the automotive chips business of the company has generated more than $300 million in revenue per quarter, with many major Chinese electric car makers relying on these chips.

According to Tu Le, founder of Sino Auto Insights, EV makers are turning to in-house chips because it is challenging to differentiate their product as superior when their competitors use the same silicon to power their infotainment and intelligent driving systems.

While traditional automakers may continue to use Nvidia and Qualcomm for their chips, Chinese electric car startups are expected to compete in designing their own chips in the future, according to Le.

In the latest quarter, Nvidia's automotive segment revenue increased by 37% year-on-year to reach $346 million.

NVIDIA was a crucial contributor to the quarter's growth, as every automotive company working on autonomous vehicles is utilizing NVIDIA in their data centers, according to company management during an earnings call, as reported by FactSet.

Alvin Liu, a senior analyst for Canalys based in Shanghai, stated that the success of Tesla in full-self driving is the main reason why Chinese automakers focus on self-development system-on-chip.

In 2019, Tesla reportedly switched from using Nvidia chips to its own for advanced driver-assist functions.

Liu stated that by creating their own chips, Chinese automakers can tailor features and minimize supply chain risks due to geopolitical tensions.

Although Liu does not anticipate a substantial effect on Nvidia in the near future, it is expected that Chinese automakers will gradually introduce new technology in small quantities in the premium market segment for testing purposes.

Leveraging latest tech

In late July, Nio announced that it had completed the design of an automotive-grade chip, the NX9031, which employs a highly advanced 5 nanometer production technology.

"For the first time, the five-nanometer process technology has been employed in the Chinese automotive industry, according to Florence Zhang, consulting director at China Insights Consultancy, as translated from her Mandarin-language remarks by CNBC. This innovation has overcome the obstacle in domestic research and development of intelligent driving chips."

Nio, who had previously hinted at the chip in December, intends to incorporate it into the high-end ET9 sedan, scheduled for release in 2025.

Nano technology with a size of 5 nanometers is the most advanced for automobiles, according to CLSA analyst Jason Tsang, who stated this after the Nio chip announcement.

Xpeng did not reveal the nanometer technology used in its Turing chip at its event on Tuesday, but its driver-assist technology is widely regarded as one of the best in China.

On Tuesday, Xpeng unveiled its chip, but Brian Gu, Xpeng's president, emphasized in a CNBC interview the day before that his company would primarily partner with Nvidia for chips.

Nvidia acquired Xpeng's former head of autonomous driving last year, strengthening their relationship.

The significance of chips in the automotive industry is being acknowledged by major players in China's electric car sector.

According to Horizon Robotics' founder, Wang Chuanfu, semiconductors are the foundation for the electric car industry's second phase, which focuses on smart connected vehicles.

Wang said more than 1 million BYD vehicles use Horizon Robotics chips.

Huawei's driver-assist system will be used by BYD's Fang Cheng Bao off-road vehicle brand on Tuesday.

The limitations on Nvidia chip sales to China have not impacted automakers because their vehicles do not currently need the most advanced semiconductor technology.

In-house tech is increasingly being utilized by Chinese automakers in their driver-assist technology, which heavily relies on artificial intelligence, as part of the ongoing U.S.-China tech competition.

In the upcoming decade, Xpeng Founder He Xiaopeng stated that the company aims to establish itself as a global AI car company.

Xpeng's Gu stated on Monday that the company had been collaborating with Alibaba Cloud for driver-assist tech training computing power prior to the U.S. restrictions. He added that the current access likely makes Xpeng the largest cloud computing capacity holder among all Chinese car manufacturers.

Creating new tech and standards

Government incentives, including subsidies and support for building out a battery charging network, have contributed to the success of electric cars in China, the largest auto market globally.

For the first time in China, more than half of new passenger cars sold in July were powered by new energy vehicles, including battery-only and hybrid cars, according to industry data.

The development of electric cars in the country is being supported by companies involved in the industry, who are also contributing to new technology standards for cars, such as eliminating the need for a physical key to unlock the door and allowing drivers to use a smartphone app instead.

The Car Connectivity Consortium, based in California, is developing a set of standards for securely connecting drivers to their cars through an app or device, as stated by president Alysia Johnson.

Johnson revealed that a quarter of the organization's members are based in China, including Nio, BYD, Zeekr and Huawei, in addition to Apple, Google, and Samsung.

The organization aims to allow a Nio car driver with a Huawei phone to securely send the car "key" to a partner who uses an Apple phone and drives a Zeekr car.

"People might be surprised at how accessible digital key technology has become," she remarked.