Why do we say that the trillion dollars market represented by new energy vehicles is opening the era of domestic IGBT crossover? JD investment insights


Summary: China plays a crucial role in industrial growth and global capacity migration. Domestic substitution is imperative to enter a new economic cycle, and the industrial landscape in China is undergoing profound changes. The power of "productive innovation," such as advancements in underlying technologies, upgrading manufacturing and modern services, globalizing Chinese brands, and digitalization to digital intelligence, is growing rapidly.

In light of the new macro background, PE institutions should correctly assess each "windfall." We will share JD Capital's research and investment insights on various industry segments periodically through [JD Investment Insight]. We always insist on identifying growth investment opportunities through certainty-based growth industry research.

Over the past decade, JD Capital has invested in many outstanding companies in the semiconductor industry chain, such as Yake Technology (stock code: 002409), which specializes in electronic semiconductor materials, Zhengfan Technology (stock code: 688596), a provider of semiconductor equipment system integration and ultra-high-purity electronic materials, Zhongying Electronics (stock code: 300327), a chip design company that focuses on MCU and lithium battery management chips, Yichong Wireless, a wireless charging chips service provider, and Shengdake, a semiconductor test equipment company, among others.

Today, we are moving from the electronic age to the century of intelligence, with semiconductors as core components, and China's short board industry. Therefore, the next decade is still in a high-speed growth period.

In this issue, we will focus on IGBT, a power semiconductor device known as the "CPU" of power electronics devices, and discuss the following topics:

Why is IGBT the most promising track in power semiconductor devices?

What is the core element that determines the speed of commercializing IGBT innovation products?

Which scenarios and demands are driving the exponential growth of IGBT?

What capabilities must domestic IGBT companies have to achieve the curve, and what types of companies should we focus on for investment opportunities?

In recent years, China has been promoting a carbon neutrality policy under the global trend of "carbon neutrality and carbon peaking." Due to energy-saving and emission reduction targets, the market for photovoltaic and wind power for energy production is expanding. The demand for new energy vehicles, electrified railways, energy-saving appliances, etc., is also increasing from the perspective of energy consumption and other areas. All these areas depend on one power semiconductor device: IGBT.

From an industrial macro perspective, the semiconductor industry is a crucial component of the electronics components industry with wide-ranging applications in many segments of the electronics and energy industry. The industry encompasses products such as integrated circuits, power discrete devices, and other devices. IGBT, a discrete device product, is one of the core components of power electronic change devices, primarily used in rectification, voltage regulation, switching, and mixing of power electronic devices. In recent years, the discrete devices industry scale has maintained a proportion of 22%-25% of the semiconductor industry scale.

IGBT, equivalent to an on-off switch, regulates the circuit's voltage, current, frequency, phase, etc., to ensure the regular operation of power equipment or electronic conducts, and can achieve energy-efficient effects. It is not only the most representative product of the third revolution in power electronics technology internationally but also the segmentation track with the highest entry barrier in the current power device field.

Compared with other products of discrete devices, IGBT has the characteristics of easy driving, fast switching speed, and low loss. With excellent performance and rapid industrialization, IGBT has gradually replaced MOSFET and BJT in industrial applications and expanded to high-power applications where SCR and GTO dominate, even penetrating consumer electronics.

Currently, IGBT is the most promising track in power devices, widely used in high-power scenarios with over 650V, such as household appliances, smart grids, new energy vehicles, rail transit, and other fields. Moreover, IGBT has not only improved the automation level of equipment and control accuracy but also significantly improved the efficiency of the application of electrical energy while reducing the volume and weight of products, saving materials. The future application space is vast.

Regarding the R&D stage, IGBT has now iterated to the 7th generation. The critical upgrade direction between generations is based on reducing losses and increasing power density. The current IGBT chips used in the mainstream market are mainly 4th generation. Extensive replacements will not only consider performance. Product reliability is more important to customers, so new products also need at least 2-3 years of validation cycles. The speed of commercialization of IGBT innovations depends mainly on product validation and production costs.

In the realm of power devices, there are three material options available: Si, SiC, and GaN. Si, which is the "dominant" semiconductor material in power discrete devices, has gradually reached its performance limit after two decades of technology and experience accumulation. On the other hand, SiC and GaN-based wide-band semiconductors are rapidly emerging, and compared to Si, they offer several advantages. These include a forbidden bandwidth that is roughly three times that of Si, a breakdown field strength that is approximately ten times that of Si, higher voltage withstand capability, lower on-state voltage drop, faster switching speed, lower switching losses, higher switching frequencies, higher allowable operating temperature, and higher thermal conductivity (for SiC).

Currently, Si-based devices dominate the IGBT market, while SiC and GaN are considered "guerrilla" forms of existence. Nevertheless, the industry regards SiC as an essential development direction for the future, and it is expected to lead the overall improvement in performance. However, due to high-cost constraints, SiC power devices, such as SiC-Mosfet, will not be able to compete with Si-IGBT in the short term and will coexist with it in the long run of gradual penetration.

In recent years, the semiconductor industry has undergone a significant shift in its global and regional distribution. The United States, Japan, Europe, and the Asia-Pacific region are the main markets for semiconductor products. With the rapid development of the semiconductor industry in China and other countries, the technology transfer of the semiconductor industry has gradually shifted from the United States to other regions. This is expected to become a brand new driving force to maintain stable growth in the semiconductor industry.

China is an essential factor in the growth and capacity migration of the IGBT industry. The market demand for China's semiconductor industry is expanding, with the market demand scale reaching 1873.16 billion yuan (equivalent to about $280 billion) in 2018, and the compound annual growth rate of market demand reaching 10.63%. Although most power diodes, power triodes, thyristors, and other discrete devices have been localized, several types of products, including MOSFET and IGBT, still rely on imports to a large extent. Therefore, there is still a vast space for domestic substitution.

The domestic IGBT market is mainly occupied by overseas manufacturers such as Infineon, Mitsubishi Electric, and Fuji Electric. Due to the difficulties in the industry, such as high technical threshold, lack of talents, difficulty in market development, and significant capital investment, domestic enterprises have been making slow progress in industrialization. With the transfer of the global manufacturing industry to China, China has gradually become the largest IGBT market in the world, and the localization of replacement is urgent.

Attracted by market demand, many overseas Chinese with IGBT-related experience has returned to China to join the IGBT industry; meanwhile, a large amount of national capital has flowed into the IGBT industry. The industrialization level of IGBT in China has been improved to a certain extent, and some enterprises have achieved mass production. Driven by industrial policy and market demand, the localization of IGBT has been accelerated.

The development of new energy vehicles as the primary industry

Will provide diversified kinetic energy for the exponential growth of the IGBT industry

IGBT can be applied to various application scenarios in the voltage range of 650~6500V, classified according to the voltage level of the application scenario, including three primary voltage levels: low voltage range IGBT (below 600V), applied to a variety of 3C products; medium voltage range IGBT (600V ~1200V), used to new energy vehicles, photovoltaic, industrial control, etc.; high voltage range IGBT (above 1700V), applied to smart grid, high-speed rail transportation, wind/photovoltaic power generation, etc.

In terms of downstream demand, new energy vehicles (including charging piles), inverter appliances, industrial control, and new energy power generation are the main application areas of IGBT, accounting for 31%, 27%, 20%, and 11%, respectively.

Among them, electric vehicles are expected to become the most significant downstream market for IGBT in China. As the "brain" of electric vehicles, IGBT is one of the core technologies of electric cars, and the performance of IGBT directly affects the power release rate of electric vehicles.

With the rapid development of the new energy vehicle market and the application of intelligent driving technology, the demand for power semiconductor devices represented by MOSFET and IGBT in new energy vehicles is expected to increase further.

A new energy vehicle has over 300 chips, over half of which are power chips. According to Gartner data, the cost of power devices in a new energy vehicle is as high as $387, accounting for 55% of the value of the entire vehicle semiconductor, much higher than the cost of a conventional car of $71. The proportion and cost of IGBT in automotive power chips are at the forefront, bringing unlimited imagination to power chip manufacturers.

In the cost structure of new energy vehicles, 11% is the electric control system, and 44% of the electric control system is the cost of IGBT. Therefore, it is projected that the market size of IGBT accounts for 4.84% of the whole electric vehicle market size.

The market size of new energy vehicles maintains a rapid growth trend, and the scale is expected to expand. Insight SLICE forecasts that the global electric vehicle market will reach $87 billion in 2025 and $191.4 billion in 2030. The market size of electric vehicles in China will accordingly reach $50.6 billion and $96.8 billion in 2025 and 2030, respectively, approaching a market size of $100 billion.

According to the forecast data of the global electric vehicle market, the global electric vehicle IGBT market will reach $4.2 billion in 2023 and $9.3 billion in 2030, while China's electric vehicle IGBT market is expected to reach $2.4 billion in 2025 and approach $5 billion in 2030.

The current global and Chinese IGBT market size is USD 6 billion and USD 2.4 billion, respectively. This means that by 2025, the market size of IGBT in China's electric vehicle sector alone will reach the total market size of the current domestic IGBT, with a compound annual growth rate of over 20%.

In addition to the new energy vehicle market, industrial control, inverter appliances, and new energy generation will also bring exponential growth to the IGBT industry.

Chance and Challenge

Domestic substitution is a problem that must be solved

Taking the development opportunity brought by the popularity of new energy vehicles for the IGBT industry as an example, domestic automotive enterprises are excited. This is an excellent opportunity for China's automotive sector to overtake the world. However, overtaking is still a false proposition without core technology.

In the era of electric vehicles, the gap between domestic electric control technology and foreign countries will be more significant than in the age of internal combustion engines. In the internal combustion engine era, engine performance can reach 80% through mapping imitation. In the era of electrification, the new energy vehicle IGBT chip, which is manufactured through wafer cutting, testing and packaging, like a computer CPU, is challenging to imitate copycats and can only go it's way.

Due to the conservative expansion of foreign enterprises and the long expansion cycle of power device capacity, there will be a supply gap of IGBT in the new energy market in the future, which will become a bottleneck for the development of new energy vehicles. To achieve the overtaking, the localization and self-sufficiency of IGBT chips is a problem that must be solved.

Currently, the leading industrial chain of IGBT includes chip design, chip manufacturing and module design, packaging and testing. There are mainly several mainstream models of IDM, Fabless, and module integration. In different modes, many large enterprises and startups are already exploring and trying in China.

With the inclination of national policies and funds, the development of China's IGBT industry has gained unprecedented momentum. Meanwhile, for supply chain security reasons, downstream manufacturers in different fields are more inclined to use products from domestic semiconductor manufacturers. The share of domestic IGBT is expected to increase.

From the perspective of primary market investment, attracted by market demand, many overseas IGBT talents have returned home and invested in developing the domestic IGBT chip and module industry since 2005. The industrialization level of IGBT in China has been improved to a certain extent, and some enterprises have achieved mass production. In addition, domestic IGBT manufacturers generally have the advantages of cost-effective performance, fast response time, and other localized services.

Specifically, for projects in this industry's early stage of development, JD Capital will focus on semiconductor companies operating in the Fabless model that focuses on technology research and development.

For projects with a specific volume, we prioritize companies with independently controllable production lines that can deliver products. In 2021, Sida Semiconductor missed orders with Ideal and Xiaopeng because there needed to be an independent and controllable production line in 2021. Amid a global epidemic and unpredictable geopolitical changes, the ability to deliver products will be the company's core competence.

At the same time, along with the emergence of the third generation of semiconductor materials, global SiC devices are still in their infancy. Even though leading overseas companies have some first-mover advantages, the technology gap is much smaller than the "iterative gap" accumulated by IGBT for decades. Therefore, domestic IGBT enterprises should not only make efforts in the field of Si-IGBT, but also Chinese enterprises with technology reserve and capacity layout in SiC power devices will have the opportunity to overtake. Such enterprises are also our key concerns.