China’s electric car slowdown hampers Nvidia’s “next billion-dollar business”

BEIJING – US chipmaker Nvidia Corp. this week strongly beat analysts’ expectations for key revenue lines – excluding cars – as Chinese demand for electric vehicles moderated.

The automotive segment primarily sells chip systems for assisted driving. It was described by Nvidia CEO Jensen Huang last year as “the company’s next billion-dollar business.”

But unit growth has slowed this year. Huang did not repeat such predictions in his latest earnings call.

In the three months ended July 30, auto revenue fell 15% from the previous quarter — the first sequential decline in more than a year.

Segment revenue of $253 million was also well below the $309.3 million expected in a FactSet analyst survey.

“The sequential decline primarily reflects lower overall auto demand, especially in China.” Colette Kress, Chief Financial Officer, Nvidia, said: In a statement on the quarterly results

She said that the demand for self-driving systems helped in the growth of car revenues by 15% compared to the same period last year.

Although it’s still a small part of the chipmaker’s business, auto revenue has grown quickly from just over $100 million two years ago.

China is the largest car market in the world. In the past few years, the country has become a driver of the global trend towards electric vehicles.

Domestic electric vehicle companies such as BYD and Xpeng are creating stiff competition for traditional automakers, in part by exploiting technological advantages.

Brady Wang, associate director at Counterpoint Research, said Chinese OEMs are Nvidia’s main market.

He said the sequential decline in auto revenue could be a result of overstocking among Chinese manufacturers, as well as their downward revisions to the forecast for luxury car sales in the next two quarters.

Nio, which sells premium-priced electric cars, is scheduled to report its quarterly results on Tuesday. Earlier this month, Xpeng reported a larger-than-expected second-quarter loss.

Xpeng is one of the few domestic electric vehicle companies offering driver assistance programs in select Chinese cities. Tesla’s “full self-driving” technology for navigating city streets is not yet fully available in China.

On Thursday, the former head of self-driving at Xpeng, Xinzhou Wu, said he would start a new job at Nvidia on Friday. This is according to Wu’s statement on social media, which included reposting a photo of him with Xpeng CEO He Xiaopeng and Nvidia’s Huang.

Counterpoint’s Wang noted that Nvidia’s products are concentrated in the high-end segment. “In the mid-range market, NVIDIA still faces competition from other vendors, such as Horizon Robotics, Mobileye and some startups,” he said.

Other auto chip companies are also seeing sequential revenue declines in this segment.

Analog Devices on Wednesday reported auto revenue of $747.6 million for the three months ended July 29, down 5% from the prior quarter.

We believe [Analog Devices] “It could be a leading indicator of a peak auto chip cycle,” David Wong, technology strategy research analyst at Nomura, said in a report released Thursday. He noted that Mobileye and Qualcomm’s auto chips also saw quarterly revenue. . He refuses.

Nvidia jumped into the automotive opportunity relatively recently.

In an annual report in late February 2022, the company claimed to have auto projects worth $11 billion over the next six years.

A year later, NVIDIA said in its annual report that the value of projected auto projects is now $14 billion over the next six years.

But in May, Nvidia said quarter-over-quarter auto revenue growth “moderated as some NEV customers in China adjust their production schedules to reflect slower-than-expected demand growth.”

The company said it “expects this dynamic to continue for the rest of the calendar year.”

In July, retail sales of NEVs fell 3.6% from June to 641,000 vehicles, according to the China Passenger Car Association. She said that sales during the first seven months of the year increased by about 36% compared to last year.

The slowdown in the fast-growing sector comes as the penetration of new energy vehicles, which includes hybrids and battery-powered cars, this year reached about a third of new passenger cars sold in China, according to trade association data.

In the long term, automakers still plan to purchase parts for assistive driving capabilities.

Hesai, which makes light detection and ranging (LiDAR) modules often used for driver assistance systems, this month reported second-quarter revenue of 440.3 million yuan ($60.7 million), topping the company’s previous guidance.

The company shipped about 60,000 driving-assist LiDAR units last year and has already surpassed that in the first half of this year. All in all, CEO David Lee expects the number of units to double this year.

He said the company will ship with six original equipment manufacturers this year, with 11 planned to manufacture next year.

“It’s not really because of the hardware itself.”

“It’s about the combined experience OEMs bring to customers as the Advanced Driver Assistance function,” he said, referring to the Advanced Driver Assistance System.

Hisae announced this month as well Its product collaboration with Nvidia Autonomous driving system and simulation platform.