EV investors say China will need to catch up in advanced chips to meet future needs of country’s booming sector

China is still heavily reliant on the West, especially the United States, for high-end chips, which could pose a challenge in future for the country’s booming electrical vehicle (EV) industry, according to investment experts speaking at a venture capital conference.

“The chip front is challenging … [and] it will be the biggest challenge for the EV industry,” Yuan Bing, co-founder of Rockets Capital, said on Tuesday in an EV & new energy panel at the China Private Equity Summit 2023 in Hong Kong. “It is a hard uphill battle, with a long way to go. We still have a lot of catching up to do.”

Rockets Capital is a private equity firm established by Chinese EV start-up Xpeng.

China is currently unable to access advanced chips, such as those used in the latest smartphones and laptops, due to US trade sanctions. Although the country has formed an army of producers that are able to churn out mature node chips for use in present day cars, more advanced chips will be needed in future to power the next generation of EVs.

A petrol-powered car needs around 200 chips, whereas an EV – on average – needs more than 1,000 chips. China’s car chip output in 2023 is expected to reach US$17.2 billion, up 55 per cent from the value output size in 2018, according to a recent report by Askci Consulting Co. Chinese carmakers have ramped up in-house production and third party suppliers such as Horizon Robotics and Black Sesame have also joined the fray.

Ian Zhu, managing partner at Nio Capital, a private equity firm affiliated with rival EV start-up Nio, said Chinese players have a key advantage over their Western competitors – they are closer to their customers.