Shanghai, home to Tesla ’s largest production base, wants to expand manufacturing capacity for automotive chips to support the rapid growth of smart electric vehicles (EVs). The mayor of Shanghai, Gong Zheng, said after the annual session of the city’s legislature on Sunday that the local government is pinning hopes on the new-energy vehicle (NEV) sector to drive its economy, and that “allocating resources for increasing the capacity of automotive chips” would help that goal. “We hope the issue of the chip shortage [in the automotive industry] can be solved soon,” Gong said. He did not elaborate on how Shanghai would produce more chips, which require wafer fabrication plants that typically cost billions of dollars in investment and take years to construct. Mainstream assisted driving systems unreliable, Chinese study finds China’s largest chip maker, Semiconductor Manufacturing International Corp , is based in Shanghai, but is building new wafer fab capacity in Beijing and Guangzhou, capital of southern Guangdong province. Last week the Shanghai government rolled out generous new incentives to attract talent and firms in the semiconductor supply chain, including a 30 per cent subsidy for investments in chip materials, equipment and design projects in the city. In his remarks on Sunday, Gong did not mention Tesla’s Gigafactory 3 at the Lingang free-trade zone, but strong sales by the global EV leader have effectively helped Shanghai create a new industrial supply chain amid the accelerated pace of electrification on mainland Chinese roads. “Automotive chips have proved to be a stumbling block to the growth of the smart EV industry around the world,” said Eric Han, a senior manager of Shanghai-based business advisory firm Suolei. “The mayor’s statement is a message that huge investments will be made in the coming two or three years to develop and manufacture semiconductors used in cars.” TSMC says chip oversupply risk is minor, predicts strong 2022 demand Beijing’s goal of achieving carbon neutrality by 2060 has fuelled demand for environment-friendly cars powered by electricity. A total of 550,000 NEVs – which include pure electric, plug-in hybrid and fuel-cell cars – were built in Shanghai last year, up 170 per cent from 2020, Gong said. He added that smart EVs, with more software-driven functions, created a surging demand for semiconductors. Tesla, whose fully-owned Shanghai factory started operations at the end of 2019, said earlier this month that the Gigafactory 3 delivered 484,130 Model 3 and Model Y vehicles last year, representing 51.7 per cent of its global total of 936,000 units. In Shanghai, state-owned SAIC Motor and its joint-ventures with General Motors and Volkswagen also develop and assemble NEVs. Gong said about 250,000 new NEVs were bought by local residents last year, which accounted for 43 per cent of the city’s total new car sales. To date, 670,000 NEVs are driving on the city’s roads and that number will more than double to 1.2 million in 2025, the mayor said. Global wafer fabs have enough capacity to produce auto chips, including microcontroller units and high-end artificial intelligence processors, to satisfy output of 4 million NEVs in China, according to industry analysts. That leaves a shortfall of 1 million vehicles, based on a demand forecast issued by the China Passenger Car Association. Swiss bank UBS predicts that three out of every five new cars sold in China by 2030 will be EVs. Separately, Shanghai’s economic output rose 8.1 per cent in 2021, matching the national growth of gross domestic product. For 2022, the city, once the mainland’s economic locomotive, set a growth target of 5.5 per cent.