Navigating The Semiconductor-auto Nexus In The Age Of AI

The automotive semiconductor market is recovering – but it is not a simple or homogenous recovery cycle. While the global semiconductor market is accelerating on the back of AI-related demand, automotive semiconductors remain exposed to a more fragmented reality: delayed demand recovery, changing vehicle architectures, selective AI-driven adjacencies, and the growing role of Chinese OEM and semiconductor ecosystems.

The next cycle will not reward companies that passively wait for vehicle volumes to recover. It will reward those that understand where semiconductor value is moving, engage earlier in vehicle architecture decisions, protect cash through better demand planning, and build strategic partnerships before the market turns.

Market dynamics in the AI era

The global semiconductor market is once more on a strong growth trajectory. Demand for AI-driven compute, and the explosive growth of the data center sector, have transformed the prospects for the industry. Yet automotive semiconductors are on a slower and more volatile recovery path. Within automotive, demand is structurally split between advanced semiconductor technology nodes (chips that serve advanced driver assistance systems – ADAS, infotainment and advanced battery management systems for electric vehicles) and relatively older nodes, which are present in a broad range of applications and remain oversupplied. 

Total revenue for the global semiconductor industry is forecast to rise from $796 billion in 2025 to around $2.4 trillion by 2028. Growth is overwhelmingly concentrated in logic technology with around 28% growth, and in memory with 82% growth, versus only around 8% growth for analog products. 

The automotive semiconductor market is strategically critical for OEMs, but it accounts for only a small share of overall semiconductor demand. While the high-performance compute segment, including AI processors, is expected to grow at around 38%, automotive logic demand will grow by just around 6%. Overall, automotive‑relevant legacy nodes represent the slowest growth. 

Vehicle modernization drives semiconductor demand

Vehicle architecture is evolving, and so is its semiconductor content. As software-defined vehicles scale, and as software development becomes more agile, decisions about hardware, including semiconductors, become embedded earlier in platform architecture and components, making them harder to change once the design is locked. The strategic question is moving from ‘how many chips are in the car’ to ‘which chips define the vehicle architecture, software performance, updateability, and future differentiation’.

Semiconductor content in EVs is also around two to three times the semiconductor content in internal combustion engine (ICE) vehicles. This is driven by the need for advanced power electronics to manage high voltages and current for the EV powertrain, battery management systems, and in-vehicle electronics that support connectivity and ADAS. 

The current average semiconductor cost per ICE vehicle is $500-600, while EV semiconductor costs are now above $1,500 per vehicle and will reach $2,000 by 2030. This chip value is not just a function of chip counts: the shift from silicon to wide-bandgap materials (primarily silicon carbide and gallium nitride) is a structural driver of incremental chip value in EVs.

The per-vehicle content gap is reinforced by market dynamics: the EV-specific and power semiconductor segments are growing several times faster than the overall automotive semiconductor market. Broad automotive semiconductor market growth is expected to be roughly 6 to 7% to 2028, while automotive silicon carbide / power-device markets are estimated to grow at around 17 to 20% or more to 2030, up to four times the growth of the underlying market. ^1 2 3 4

The power to decide is shifting

In the semiconductor-automotive nexus, architecture change is not only technical; it also reshapes commercial power. OEMs are taking a more direct role in deciding which semiconductor technologies enter the vehicle. Until now, Tier 1 suppliers have enjoyed considerable sway over PCB design and chip selection, but as software-defined vehicles gain traction OEMs will demand more central and domain control.

Such in-house development is an emerging trend, especially for leading OEMs with both volume and technologies. OEMs can achieve maximum performance with flexibility and, in the long run, build up a higher moat to defend technology and products against competition.

While most automotive OEMs, Tier 1, and Tier 2 suppliers remain in traditional supplier relationships, they are redefining who designs the vehicle and who selects components, with direct implications for semiconductor suppliers’ customer access, design-in timing (when semiconductor suppliers collaborate with OEMs and lock in designs), and go-to-market model.

This means that classic Tier 1 coverage is no longer sufficient for all architecture-critical semiconductor decisions; suppliers need earlier OEM engagement and stronger roadmap alignment before platform decisions are locked. Meanwhile, technology providers are assuming a new role supplying customized chips and software, a collaboration model that is also being applied to autonomous driving. Semiconductor suppliers are already on the road to effectively becoming Tier 1 suppliers in automotive, risking margin dilution in the automotive portfolio for those who are not prepared for this change of role.

• Takeaway: The auto semiconductor opportunity is real but increasingly concentrated, and the path to winning it runs through new architectural relationships, not just better components.

New competitive forces are crystallizing

The competitive landscape is changing for automakers and semiconductor manufacturers, shaped by increasingly impactful forces. Chief among these are AI and the rise of sophisticated Chinese competitors.

The complexities of the AI magnet

Demand from AI impacts the supply of automotive semiconductors – but through overlap and second-order effects. There is little direct competition for supply, because AI chips and automotive semiconductors are manufactured using fundamentally different process technologies, in different fabrication plants (or ‘fabs’), with different equipment. Capital cannot simply migrate. But in some areas, both upstream and downstream, conflicts arise, and priorities are set. The one exception to this distinction is in power management and data center infrastructure components, where automotive companies have found crossover in terms of production process and functionality. 

When competition between AI and automotive happens, it is primarily within the high-end chips segment, where similar logic nodes are or will be used in high-performance compute as well as in vehicles, such as the central computing chip or domain controllers for autonomous driving. Second-order competitive effects are visible in areas like data centers and other AI-enabled applications, which compete with automotive for commodity supplies such as memory, pushing up prices and squeezing automotive allocation. Makers of DRAM chips are prioritizing high-margin, high-bandwidth memory and newer-generation products for AI datacenters, tightening the supply of legacy automotive semiconductors.

Overall permanent relegation of automotive to a lower priority is likely to become a semiconductor strategy as AI demands grow. Where they do compete, this sets up a challenge for automotive OEMs in the medium- to long-term. 

China’s double impact

The rise of China as a serious automotive economy has changed the game for both automakers and semiconductor manufacturers – and more change is to come. Today, China is exerting two interlocking pressures, shrinking the total addressable market for Western automotive and semiconductor companies while simultaneously positioning China to capture the rebound.

In Europe, for example, Chinese automotive OEMs are gaining market share, while favoring domestic semiconductor suppliers, meaning that Western suppliers are losing content share even in growing markets. This is policy as well as strategy: Chinese OEMs are being actively directed to buy from local chipmakers. Under China’s 14th Five-Year Plan, EV makers have been asked to boost purchases from domestic Chinese automotive chip suppliers to decrease reliance on Western imports.⁵ The European Commission has explicitly warned that EU chipmakers such as NXP and Infineon, as well as Japan's Renesas, risk losing substantial market share in China as Beijing accelerates this drive for self-sufficiency.⁶

Chinese semiconductor players are also closing the technology gap faster than conventional wisdom recognizes, through aggressive talent acquisition rather than organic R&D. ⁷

The conventional view holds that China is structurally behind: China’s largest chipmaker Semiconductor Manufacturing International Corporation (SMIC) mass-produces at 7 nanometer-class nodes, three generations behind the 2nm-class production of Taiwan Semiconductor Manufacturing Corporation (TSMC). But the rate at which the technology gap is closing is under-recognized: for example, data from Chinese customs sources show that the average export price per Chinese chip rose from $0.38 in 2015 to $0.58 in 2025, suggesting a very clear increase in technological sophistication across the board.⁸

That leaves the question: can the European auto-semiconductor nexus respond to align demand and supply behind its own semiconductor base? European companies are strong in the automotive-relevant mature nodes (power, analog, MCUs, and sensors), but the region lacks leading-edge, high-performance logic capability, the core chips that define software-defined and AI-enabled vehicles. Can they move fast enough to defend their automotive chip total addressable markets?

• Takeaway: the market is recovering, but that does not spell automatic growth for incumbents. External forces are redrawing the map of market share, which makes standing still a losing strategy. 

The strategic response

Both automotive OEMs and semiconductor manufacturers need a strategic path towards a win-win outcome. Changes in semiconductor technology, the evolution of AI, and the pace of advances in Chinese capabilities all introduce new risks but also new opportunities.

Four execution imperatives for semiconductors

• Technology leadership and the speed of new product introduction are critical. Manufacturers will need to bet on the right architecture shifts early and compress the development and manufacturing cycle from design to production ramp-up. Specialized automotive high-performance computing chips represent the fastest-growing automotive semiconductor category. Early correct bets on this segment will compound into a disproportionate share of revenues as the segment scales.
• Sales and operational planning supported by demand-forecasting excellence will be a differentiator. In a volatile environment, the cost of being wrong is asymmetric. AI-assisted forecasting is a competitive enabler that directly attacks this asymmetry, cutting forecast errors by an estimated 20 to50% and enabling planners secure wafer starts and substrates before constraints bind.^9 10
• Deploying strong market intelligence and strategic M&A are not only possible, they are necessary. The automotive-semiconductor nexus is relatively small: all participants need to monitor new entrants actively and consider acquisitions to close capability gaps before competitors do. ^11 12 13
• Rethinking the web of customer/supplier relationships. In the future, OEMs will talk with semiconductor makers directly on chip customization and secure sourcing at volume. Technology providers will be involved in customization or delivery of general high-performance chips for vertical integration. Tier 1 suppliers are already being repositioned around integration. 

OEMs need strategic semiconductor relationships

For automotive OEMs, it is increasingly critical to treat the semiconductor relationship as strategic rather than transactional. In an environment of constrained supply and shifting competitive dynamics, OEMs that manage semiconductor partnerships as strategic alliances, by sharing roadmaps, co-designing components, and offering supply visibility, will secure better access and better economics than those treating it as pure procurement.

Development strategy requires case-by-case decisions on whether to pursue in-house or partnership development of customized chips to maximize performance and stability, and always with supply-chain risk and defined back-up sources built into the plan. This leaves OEMs with a choice of supplier models:

For OEMs capable of being technical leaders, the OEM will define both chip and software solutions: supplier relationships will be based on securing some technology refinements and chip supply, while concentrating technical capacity in-house. 

For OEMs with less advanced capability, supplier relationships will be based on partnership and adaptation of reference designs, working with providers such as Nvidia and Qualcomm. They offer reference designs with room for customization and adaptability across OEM platforms, which maximizes re-use potential and software solution choices. 

Finally, those OEMs with the lowest capability will select off-the-shelf existing solutions from technology providers that are vertical integrators, such as Huawei, where suppliers’ end-to-end solutions that combine hardware chips and software stacks can be adopted.

• Takeaway: operational capability is the foundation, and flexible supplier relationships are the medium that can deliver rapid responses to a market changing faster than ever before. 

Conclusion

The automotive semiconductor market will remain soft and volatile for an extended period. The primary source of competitive advantage will lie in the operational discipline to maximize profitability in today’s reality, the forecasting acuity to see the turn before it arrives, and the organizational readiness to execute fast when the window opens. 

The use of AI in operations and planning will create the optimal foundation for the execution of strategies that may have to change as fast as the market itself is changing. And, somewhat ironically, it will also be the tool that will help semiconductor players win in automotive. 

Footnotes

1. Mordor Intelligence: https://www.mordorintelligence.com/industry-reports/automotive-semiconductor-market

2. Fortune Business Insights: https://www.fortunebusinessinsights.com/automotive-semiconductor-market-106780

3. Fortune Business Insights https://www.fortunebusinessinsights.com/automotive-semiconductor-market-106780

4. Data Bridge: https://www.databridgemarketresearch.com/reports/global-sic-power-semiconductor-market

5. CETaS (The Alan Turing Institute), "China's Quest for Semiconductor Self-Sufficiency" https://cetas.turing.ac.uk/publications/chinas-quest-semiconductor-self-sufficiency

6. Bloomberg, "EU Warns Its Chipmakers Could Lose Market Share in China" — https://www.bloomberg.com/news/articles/2024-06-28/eu-warns-its-chipmakers-could-lose-market-share-in-china

7. Tom's Hardware, "China intensifies efforts to poach semiconductor talent from Taiwan" — https://www.tomshardware.com/tech-industry/semiconductors/china-intensifies-efforts-to-poach-semiconductor-talent-from-taiwan-claims-report-international-restrictions-motivate-illicit-efforts-to-obtain-talent-and-equipment

8. https://www.thinkchina.sg/economy/has-china-hit-limits-chip-self-reliance

9. Part Analytics, "How AI Is Transforming the Semiconductor Supply Chain" — https://partanalytics.com/ai-transform-semiconductor-supply-chain/

10. TechInsights, "Automotive Semiconductor Market" (top five supplier shares) — https://www.techinsights.com/blog/automotive-semiconductor-market

11. Coherent Market Insights, "Automotive Semiconductor Market Size, Share and Forecast, 2025-2032" (NXP–Kinara) — https://www.coherentmarketinsights.com/industry-reports/automotive-semiconductor-market

12. MarketsandMarkets, "Automotive Semiconductor Market Report 2025-2030" https://www.marketsandmarkets.com/Market-Reports/automotive-semiconductor-195.html

13. Mordor Intelligence, "Automotive Semiconductor Market Size, Report Analysis 2030" (https://www.mordorintelligence.com/industry-reports/automotive-semiconductor-market