China is the largest electric vehicle (EV) market in the world. EVs are also called new energy vehicles (NEVs) and battery electric vehicles (BEVs). However, the combination of price cuts, European Union provisional tariffs and an uncertain macroeconomic climate caused the EV industry's growth to slow at the start of 2024. Its EV registrations dropped 45% YoY in July 2024.
Evidence of a recovery in China’s automobile market is underway thanks to Chinese government incentives and economic stimulus. It’s allowed BYD Co. Ltd. (OTCMKTS: BYDDF) to surpass one million deliveries a month for the first time, more than double that of Tesla Inc. (NASDAQ: TSLA). Chinese EV makers are reporting YoY deliveries like NIO Inc. (NYSE: NIO) reporting a 35.4% YoY increase in September to 21,181 vehicles, and Li Auto Inc. (NASDAQ: LI), delivering a record 152,831 vehicles, up 45.1% YoY in September. While that's good news for Chinese automakers, it's also good news for these three non-Chinese stocks in the computer and technology sector gaining from the EV recovery.
Texas Instruments: A Harbinger of the Chinese EV Recovery
In its recent third quarter of 2024 earnings report, semiconductor company Texas Instruments Inc. (NASDAQ: TXN) reported an EPS beat by 6 cents while revenues fell 8.4% YoY to $4.15 billion, still beating consensus estimates of $4.12 billion.
The beat was largely credited in part to the recovery of the Chinese automotive industry.
Chinese EVs Are the Growth Driver in the Automotive Segment Revenues
Texas Instruments saw its Q3 automotive segment sales rise 8% YoY, with most of the growth coming from China's EV sales. Chinese EVs contain far more computer chips than conventional gas-operated vehicles. Texas Instruments provides analog chips that are crucial for managing power, sensors, and control systems like engine, braking, and infotainment. Its digital signal processors (DSPs) handle complex signal processing like radar, audio, and image. Its chips also enable advanced driver assistance systems (ADAS) features, including adaptive cruise control and lane change warnings.
Unfortunately, that was the highlight of Texas Instrument's earnings as the industry continued to soften, with sales falling in the low single digits due to continued inventory glut issues.
OnSemi: A Leader in Silicon Carbide Technology
While On Semiconductor Co. (NASDAQ: ON) doesn’t itemize its revenues by country, there are estimates that up to 30% of its revenue is derived in China, which is part of its Asia Pacific segment. Onsemi’s CEO Hassane El-Khoury stated that China is recovering, driven by both automotive and industrial, in its early second quarter of 2024 conference call. Texas Instruments' latest earnings report indicates strength in Chinese EVs, which should also be reflected in Onsemi's earnings report.
Winning in Germany
El-Khoury stated the company has doubled down on its investment in its Analog, Mixed Signal, and Power Solutions portfolio, citing examples of design wins with Volkswagen AG (OTCMKTS: VWAGY) like its next-generation traction inverter for Scalable System Platform (SSP). El-Khoury commented, “VW Group is the second-largest automotive OEM in the world, and we expect that all VW brands, including Volkswagen, Audi, Porsche, and Skoda, will be powered by Onsemi's silicon carbide in their next-generation platforms.”
Silicon-Carbide Leader in China
Onsemi is the leader in the silicon carbide industry in China, and it is designed for 60% of EV models in the country. He states that China is the world's largest and fastest-growing BEV market. Chinese original equipment manufacturers (OEMs) who are introducing their 800-volt platforms are adopting Onsemi's silicon carbide solutions like the M3e, which demonstrate market-leading efficiency. He cited that the latest research reports show that 22% of EVs produced are enabled with silicon carbide (SiC). SiC devices have higher heat resistance and efficiency due to lower energy losses with faster switching speeds and greater density than traditional silicon-based chips.
Onsemi also sees tailwinds from industrial markets and AI data centers. El-Khoury noted that as AI data center racks increase power from 40 KW to 120 KW in 2025, their addressable content increases from $2,500 to $9,500.
STMicroelectronics: The Competitor and Peer Should Feel Identical Tail and Headwinds
The Chinese EV market recovery noted in Texas Instruments’ earnings report should also boost that segment with STMicroelectronics N.V. (NYSE: STM), another semiconductor company that derives up to 40% of revenues from China. The company also supplies silicon carbide. It closed a long-term supply agreement with Chinese auto giant Geely Automobile Holdings Ltd. (OTCMKTS: GELYY) for silicon carbide power devices in their BEVs in the second quarter of 2024. As a competitor and peer with Texas Instruments and Onsemi, STMicroelectronics is also expected to benefit from the recovery in Chinese EV offsetting the continued softness in Industrial segment revenues in its Q3 2024 earnings release. Incidentally, all three stocks, TXN, ON, and STM, move together as a group.
