Chips are what make today’s cars smart – managing everything from power, braking, steering and the software behind every screen.
Pop open the hood of China’s latest smart vehicles and a growing share of those chips now comes from domestic suppliers, according to officials and industry observers, as the country’s drive to slot more homegrown semiconductors into cars gains traction.
But analysts say progress remains uneven, with adoption concentrated in core control functions rather than advanced computing platforms that power assisted driving and digital cockpit systems.
And while Beijing contends with a simmering rivalry with Washington and other parts of the West, experts told CNA the hurdles to wider adoption are mostly ecosystem-related, not geopolitical.
The push is unfolding alongside broader efforts to localise China’s semiconductor supply chain, including measures encouraging chipmakers to rely more heavily on domestic equipment.
While chips used for core control systems are relatively mature, advanced processors depend on lengthy certification, deep software integration and stable long-term supply – capabilities that domestic players are still building, analysts said.
Those constraints are most acute in high-end computing and software integration, said David Zhang, secretary general of the International Intelligent Vehicle Engineering Association (IIVEA).
“When automakers adopt local chips, they often have to invest far more time and resources in Research and Development (R&D) integration. This is not something that can be solved quickly, as foreign chips benefit from toolchains refined over many years,” he told CNA.
“HISTORIC LEAP”
The global chip crunch during the COVID-19 pandemic exposed how fragile automotive supply chains could be, and the extent to which Chinese carmakers relied on overseas suppliers.
In the aftermath, Chinese automakers and chip firms have spent recent years working to build a more resilient supply chain and strengthen self-reliance.
Japanese media outlet Nikkei Asia reported in May 2024, citing people familiar with the matter, that China’s Ministry of Industry and Information Technology had encouraged leading automakers to raise domestic chip sourcing to around 20 per cent to 25 per cent by the end of 2025. The ministry has not publicly confirmed the guidance.
Latest indications of progress this year have come from high-profile product launches by leading domestic EV makers.
XPeng debuted its in-house Turing AI chip in the G7 SUV in June and later rolled it out in the updated P7 sedan, describing it as one of its most powerful on-vehicle computing platforms to date.
In November, GAC Aion, a major Chinese electric vehicle maker whose cars are widely used in ride-hailing fleets, said its premium Hyper GT model had entered production, calling it China’s first intelligent new-energy vehicle using 100 per cent domestically designed chips.
Zou Guangcai, deputy secretary-general of the China Automotive Chip Industry Innovation Strategic Alliance, a state-backed group, said China’s automotive chip industry had made a “historic leap” compared with three years ago.
“More than 1,000 companies across the supply chain are now involved, with over 90 per cent of chip products having entered the R&D, validation, mass production or on-vehicle deployment stage,” he said at a forum on Dec 18.
Some new Chinese vehicle models have crossed 20 per cent domestic sourcing, with a small number going further, Zou said.
China EV100, a local industry think tank, has put chip localisation among Chinese automakers at about 15 per cent overall.
Jia Dongyao, an associate professor at Xi’an Jiaotong-Liverpool University (XJTLU), said localisation is advancing in certain chip types, alongside closer coordination across the supply chain.
According to him, progress in automakers’ localisation plans and industry-level coordination has been faster than many external observers might expect, a shift reflected in the ambitious targets now being flagged by some major carmakers.
SAIC Motor and Dongfeng Motor Group have both flagged 2025 as a key milestone, with SAIC targeting around 30 per cent localisation and Dongfeng aiming for 60 per cent, with ambitions to push it to 80 per cent.
Neither company has publicly disclosed whether these targets have been met. CNA contacted both for comment, but did not receive a response by the time of publication.
Jia cautioned that there is no standard metric for chip localisation, and estimates vary widely depending on whether they are calculated by unit count, value, or vehicle model.
Lim Chee Kiang, an automotive consultant at Germany-based Marketperformance GmbH, said China’s localisation push is being driven more by industry dynamics than policy mandates.
“Chinese vehicles … are a lot more advanced in smart cockpit and autonomous driving feature content than vehicles from the West. Fundamental to these software-defined vehicles are the chips or ‘brains’ controlling the systems and sub-systems,” he told CNA.
He added that because Chinese EV makers control vehicle design, software and production domestically, they are in a stronger position to push homegrown chips into real-world use – shaping demand and accelerating the growth of local supply chains.
FROM TRACTION TO FRICTION
But analysts warned that several speed bumps lie ahead for wider homegrown chip adoption among Chinese automakers.
Uneven uptake remains a key sticking point, with localisation strongest in core control components while the most technically demanding systems still rely largely on foreign chips.
“Most of the gains are concentrated in power semiconductors … and intelligent control chips,” Brady Wang, associate director at Counterpoint Research, told CNA, adding that progress is largely driven by the rapid expansion of the domestic EV market.
More than 75 per cent of chips in a typical vehicle rely on well-established technologies where China already has strong manufacturing capacity, analysts said.
Pointing to China’s massive 8-inch and 12-inch mature-node capacity – wafer lines widely used in automotive control systems – alongside advantages in materials, demand and cost competitiveness, Lim said he expects “market forces alone will drive localisation”.
In contrast, high-end processors for more complex tasks, such as assisted driving and top-tier cockpit computing, remain largely sourced from global suppliers.
Leading automotive semiconductor suppliers remain concentrated in Europe, the United States and Japan, analysts noted, and production of the most advanced chips still takes place largely overseas using long-established toolchains.
While some Chinese automakers have made inroads in producing more advanced chips, efforts have been expensive.
NIO’s 5 nm Shenji NX9031 driving chip took three years to develop and cost billions of yuan in R&D, with the company saying the investment was equivalent to building hundreds of battery swap stations.
Supply stability is also critical to ensuring that China’s more than 200 licensed vehicle manufacturers can adopt domestic chips with confidence, experts said.
Leading automakers such as SAIC Motor, FAW Group and Great Wall Motor are already working with domestic automotive-grade chipmakers, including Horizon Robotics and Black Sesame Technologies, on intelligent driving and cockpit systems.
Still, “a credible collaboration model between chip companies, parts suppliers and vehicle manufacturers has yet to be fully established,” said Xia Xianzhao, chief expert at the China Automotive Technology and Research Centre (CATARC).
“Only through repeated real-world use and iteration by downstream automakers can chip safety, reliability, quality and cost performance be meaningfully improved.”
CATARC co-operates China’s first national-level automotive chip standard verification platform, which covers the full chip life cycle from design to on-vehicle application. The platform launched in October to support standardised quality and system-level verification as chip localisation advances.
In a note published on the centre’s website on Oct 19, Xia wrote that chip selection is one of the greatest challenges for auto firms.
He said a surge of new domestic chip suppliers has made sourcing more complex for automakers, with no unified framework to assess product capability.
“While most automakers have set up dedicated teams or research units to handle chip selection, there remains a shortage of specialised talent, making the selection process highly challenging,” he wrote.
As of Aug 2025, data compiled by industry platform Gasgoo shows that China has more than 14,000 automotive chip-related companies nationwide, with around 20 per cent founded within the past five years.
Beyond chip performance, automakers also need long-term production consistency, process control and second-source availability, noted Bill Russo, founder and CEO of Automobility, a mobility strategy and investment advisory firm.
“Redesigning electronic control units or software stacks around new chips can introduce cascading complexity, particularly for platforms already in production,” he told CNA.
Authorities have acknowledged the bottleneck. In 2024, China’s Ministry of Industry and Information Technology unveiled a phased automotive chip standards road map, targeting more than 30 standards by 2025 and over 70 by 2030.
The aim is to create a standardised framework for chip testing and selection across the industry.
VARYING MILEAGE ABROAD
Beyond China’s borders, a different set of pressures shapes how domestic chips are used in cars.
When selling overseas, Chinese automakers often favour global suppliers in critical systems because buyers have greater confidence in the data handling and after-sales support of established players, analysts said.
“Export vehicles often still rely on globally recognised chip suppliers to meet regulatory expectations, ensure serviceability, and reassure overseas partners,” said Russo from Automobility.
Russo added that cross-border considerations mean the use of highly localised Chinese chips can still be a drawback in overseas markets, particularly in Southeast Asia, where local distributors tend to rely on globally recognised suppliers to ensure compatibility with existing after-sales and servicing ecosystems.
At the same time, as Chinese EVs gain wider acceptance globally, political pressures are likely to push automakers to localise manufacturing in overseas markets, even if this erodes some of the cost advantages of producing in China, said Lim from Marketperformance GmbH.
China has become the world’s largest car exporter, shipping 7.33 million vehicles in the first eleven months of 2025, up 25 per cent year on year, driven largely by demand for new energy vehicles.
Analysts noted the push is playing out as car-producing countries grapple with job losses. Germany’s auto sector alone has cut more than 51,000 jobs in the past year, according to consultancy firm EY.
Intensifying Chinese competition has prompted tariff pushback abroad, including 100 per cent duties in the US and mid-30s per cent levies in the European Union on certain Chinese EVs.
That pressure is increasingly pushing Chinese automakers to localise manufacturing overseas, Lim said.
“At first glance, (Chinese automakers) may turn to local chip suppliers in overseas markets,” Lim said.
“But what may actually happen is that they bring their domestic chip suppliers overseas with them.”
Chinese chip companies have been expanding overseas, with Malaysia a key Southeast Asian hub, alongside moves into the Middle East and other markets, according to a 2024 report by Chinese business news portal Caixin.
Even so, data privacy, rather than chip origin, is among the more significant concerns, Lim said.
“(This) is somewhat downstream of chips in the value chain, pertaining to how software and connectivity might transmit sensitive location and personal data back to the makers’ China headquarters,” he said.
But this “could happen regardless of where the chips are produced”, Lim noted.
Semiconductors remain among the most sensitive and contested sectors in global trade, a sensitivity underscored by the recent Nexperia case, in which the Dutch government took control of the Chinese-owned chipmaker over concerns about technology transfer and economic security.
“Should foreign governments restrict Chinese cars, Chinese chip content is unlikely to be the major reason,” Lim said.
DIRECTIONS, NOT DEADLINES
Rather than setting binding localisation targets, policymakers have focused on building the standards, testing and validation infrastructure needed to support domestic automotive chips, analysts said, adding that this process will take years to mature.
Nikkei Asia reported in June, citing sources, that China’s latest policy target was for domestic automakers to use wholly self-developed and made automotive chips by 2027. The sources said the 100 per cent figure was not mandatory.
Experts said such ambitions should be viewed as aspirational rather than prescriptive, noting the difficulty of achieving full localisation across the industry within a fixed timeframe.
Wang from Counterpoint Research said the goal is better understood as a directional signal rather than a literal deadline.
He expects local penetration to rise in selected areas by 2027, but said a hybrid, dual-supply model will remain the industry norm.
Jia from XJTLU echoed that view, while being more optimistic that some automakers could achieve full localisation in limited segments.
“Localisation could be realised for low-end models or non-core systems, whereas in areas like smart cockpits and high-end autonomous driving, localisation rates might only increase to 20 to 30 per cent, with core components still reliant on imports.”
Xia, the chief expert at CATARC, said the past several years have been marked by rapid supplier growth and uneven quality.
He expects the next five years to bring steadier development before the industry reaches maturity around 2030.
“By 2030 … domestic products will be on par with international ones in terms of technology,” Xia said.
“At that point, competition will centre on product competitiveness, cost effectiveness and ecosystem strength, marking a symbolic stage in which China’s automotive industry, together with its chip sector, moves towards the global forefront,” he said.
Zhang from IIVEA stressed that such benchmarks should be seen as forms of encouragement aimed at sustaining momentum among both enterprises and policymakers.
“Localisation is an internal driving force. If companies do not steadily raise the share of domestically made components year by year, the risks could grow over time, making them more vulnerable to supply chokepoints,” he said.
“A country and its enterprises are usually bound together. When companies do well, the country does well. When companies struggle, the country struggles too.”