The popularization of automotive electronics will drive up both the quantity and price of automotive PCBs (printed circuit boards). In recent years, there has been a clear trend towards electrification and electronicization in automobiles, and PCBs are almost ubiquitous in automotive electronic systems.

New energy vehicles and intelligent driving components will significantly enhance the value of automotive PCBs

In recent years, the trend towards electrification and electronicization of automobiles has become increasingly evident. As the backbone of electronic products, the importance of PCB manufacturing in the automotive supply chain is increasing day by day. Compared to traditional fuel vehicles, the addition of charging, energy storage, distribution, and voltage conversion equipment in new energy vehicles will bring a large number of new application scenarios to PCBs.

Meanwhile, although L4 and above autonomous driving cannot be mass-produced in a short period of time, the gradual penetration of various intelligent driving components will bring rapid development opportunities for the application of high-end high-frequency PCBs in automobiles.

PCB application major: new energy vehicles

According to our calculations, in the powertrain and transmission field alone, the single vehicle value of PCB on electric vehicles is as high as about 800 yuan, which is 20 times the value of PCB in this field of traditional cars.

The new demand for electric vehicles mainly comes from powertrain related equipment such as on-board chargers, battery management systems (BMS), voltage conversion systems (DC-DC, inverters, etc.), as well as other high and low voltage components.

The large number of high-voltage and high-power devices included in new energy vehicles, such as IGBT, MOSFET, etc., have high requirements for heat dissipation, which makes the layout of PCB not too dense, further increasing the amount of PCB used in new energy vehicles.

On each new energy vehicle, the total PCB board required for the above-mentioned equipment alone is about 0.8 square meters.

However, the total PCB required for a gasoline car with moderate electronic level is only about 0.43 square meters. In the internal combustion engine and traditional systems of traditional fuel vehicles, the amount of PCB used is very small, totaling only about 0.04 square meters.

Automotive millimeter wave radar is an important driving force for promoting high-end PCBs

In intelligent driving devices, millimeter wave radar must be manufactured using high-frequency PCB. The unit price of high-frequency PCB is several times that of ordinary PCB, and the value of a single millimeter wave radar PCB can reach up to 100 yuan.

Automotive millimeter wave radar mainly uses two frequency bands, 24GHz and 77-79GHz, which are much higher than the usage scenarios of general circuits.

The characteristics of high-frequency circuits determine that the requirements for the manufacturing process from the key raw material of high-frequency PCBs - copper-clad laminates - to PCBs are much higher than those for general PCBs

The transmission susceptibility of high-frequency circuits determines that PCB copper-clad laminates must use special substrates such as PTFE.

The difficulty in processing high-frequency copper-clad laminates determines the high added value in the processing of high-frequency PCBs.

The application of millimeter wave radar in China continues to grow rapidly, with a year-on-year increase of about 54% in 2018. According to estimates from Zosi Industry Research, the domestic shipment of millimeter wave radar reached 3.58 million units in 2018.

Vehicles equipped with ADAS functions generally require 2-7 millimeter wave radars, so the domestic production of millimeter wave radars in 2018 was equivalent to equipping 720000 vehicles, with a penetration rate of around 3%.

Among them, the shipment volume of domestic 77GHz millimeter wave radar exceeded 24GHz for the first time in 2018, becoming mainstream. Due to its higher frequency, 77GHz has higher requirements for PCBs.

Automotive PCB will both increase in quantity and price, far exceeding the industry's growth rate

According to our calculations, the new energy vehicle equipped with millimeter wave radar and central control screen will have a PCB usage of 1.24 square meters per vehicle, worth 1281 yuan, which is 3.6 times that of traditional fuel vehicles without the above configurations.

The main driving forces for the increase in the value of PCB bicycles include:

The popularization of new energy vehicles

The application of intelligent driving devices, especially millimeter wave radar

Improvement of human-computer interaction system

Driven by new energy vehicles, the automotive PCB market will experience long-term stable growth.

The production and sales of new energy passenger vehicles in China will continue to grow rapidly in the coming years, with an expected CAGR of around 40% from 2018 to 2025. Domestic sales of new energy passenger vehicles exceeded 1 million units in 2018, and are expected to exceed 2.5 million units by 2020, approaching 12 million units by 2025, with a market share of over 40%.

Millimeter wave radar is an important sensing device for achieving intelligent driving and even autonomous driving goals, with significant advantages compared to other sensors.

The cost of millimeter wave radar is much lower than that of laser radar, while its range and adaptability to the environment are much better than cameras.

In addition to the above points, the complex and ever-changing usage environment that automotive products need to face also makes the performance and reliability requirements of automotive PCBs much higher than those of PCB products used in general consumer electronics.

The higher requirements make the production yield of automotive PCBs higher than that of general PCBs. At the same time, automotive PCBs have high requirements for drilling, etching, and other process steps, coupled with the added value of design and experimental verification, resulting in a higher product unit price than general PCBs.

We predict that the average value of automotive PCBs per vehicle will increase from 464 yuan in 2018 to 850 yuan in 2025, with a CAGR of 9% during this period.

According to the long-term CAGR of 2% for total domestic passenger car sales, the year-on-year growth rate of new energy vehicles from 2018 to 2025 will gradually decrease from 60% to 30%. Conservatively estimating, the domestic automotive PCB market will rise from 10.9 billion yuan in 2018 to 24.1 billion yuan in 2025, with a CAGR of 12% during this period.

Considering that many products of domestic PCB manufacturers are actually matched with vehicles sold overseas, the growth rate of the domestic automotive PCB market will be even faster.

It is expected that by 2025, the global automotive PCB market will reach 58.3 billion yuan.

Chinese PCB company's automotive business has begun to take shape with considerable growth rate

Multiple PCB manufacturers' main revenue growth comes from automotive boards

In recent years, the proportion of automotive business of A-share listed PCB manufacturers has significantly increased, with a group of PCB manufacturers whose automotive business accounts for more than 25% and the automotive business accounts for the majority of revenue growth.

In terms of the absolute number of automotive businesses, both Shanghai Electric Power Co., Ltd. and Yidun Electronics are expected to have automotive business revenues exceeding 1.3 billion yuan in 2018. Among the listed companies, 5 have automotive PCB businesses reaching 500 million yuan, which is 2 more than in 2017. Among them, Shanghai Electric Power Co., Ltd. ranked around 10th in the global automotive PCB business in 2017.

The total business of the top 6 A-share listed companies in the automotive PCB industry in 2018 reached 5.3 billion yuan, a year-on-year increase of 32.7%, and the growth rate continued to expand compared to 29.1% in 2017. Among them, the automotive business has grown rapidly, including Oscon, Bomin Electronics, Shenghong Technology, and Jingwang Electronics.

The total automotive business of the top 6 A-share listed companies in the automotive PCB business in 2018 accounted for 23.9% of the total revenue, a significant increase from 22.1% in 2017, and continued to be much higher than the market. According to Prismark, an electronics industry consulting firm, global automotive PCBs account for approximately 10% of all PCB applications.

From the perspective of the contribution rate of automotive business increment to total revenue increment, the total contribution rate of the top 6 A-share automotive PCB manufacturers in 2018 was 31.1%, significantly higher than the level of major global PCB manufacturers.

All of Eaton's newly added revenue was contributed by its automotive business (with other businesses contracting), and the automotive business contributed 79% and 29% to the revenue growth of Oscon and Shanghai Electric Power, respectively.

Chinese PCB companies improve their automotive business layout

Major domestic PCB manufacturers have already established a relatively complete layout in the fields of automotive information and entertainment, lighting, powertrain, and chassis (steering, braking). Several companies have entered the supply chain system of mainstream Tier 1 customers such as Faurecia, Delphi, Continental, Denso, Prudential (Junsheng Electronics), and Desay SV.

In the PCB field dedicated to new energy vehicles and millimeter wave radar, domestic manufacturers have not yet formed a scale, and there is a certain gap compared to international leading enterprises such as Schweizer and Jingpeng. But in recent years, there have also been some breakthroughs, mainly reflected in:

Shanghai Electric Power Co., Ltd. has acquired the production capacity of new energy vehicle powertrain PCBs and millimeter wave radar high-frequency PCBs through its stake in Schweizer, and multiple projects have entered mass production; Jingwang Electronics and Oscon have started supplying high-frequency PCBs in small quantities, while Yidun Electronics is collaborating with downstream partners for development; Shenghong Technology's BMSPCB product is compatible with BYD and has already been mass-produced; Jingwang Electronics' BMSPCB product is being developed to match Ningde Times.

The competitive landscape of automotive PCB companies is better than downstream ones

Compared to downstream, domestic PCB companies have greater opportunities to continue breaking through in the automotive industry.

The automotive PCB manufacturing process does not directly involve the driving control field that Chinese companies are not proficient in and have difficulty accumulating experience in.

PCB manufacturers generally belong to automotive second or third tier suppliers (Tier2 or Tier3), and only directly supply to system suppliers (Tier1), with a greater emphasis on manufacturing. Tier 1 requires a significant amount of design and validation work.

The automotive electronic verification work requires comprehensive consideration, sophisticated design of experiments, and full verification of the operation of each subsystem under various extreme conditions (extreme working conditions, temperature, humidity, and vibration environment combinations), which requires extremely high accumulation of knowledge and technology from suppliers in the automotive driving itself.

The current market concentration of Tier 1 automotive electronics related to intelligent driving is relatively high, with only traditional global automotive component giants such as Bosch, Continental, and Denso from Japan as the main participants. Chinese manufacturers can only engage in some businesses such as BMS (Junsheng Electronics, etc.), TPMS (Baolong Technology, etc.), and HMI (Desay SV, etc.), with limited value.

Compared to the chip industry, the gap between Chinese companies and international advanced levels in the PCB field is relatively small. At present, most automotive chips are monopolized by global giants such as NXP, Infineon, and Renesas Semiconductors, and the share of Chinese chip manufacturers is extremely limited.

The downstream of PCB (such as PCBA business) serves as both the downstream of chip manufacturers and the upstream of multinational Tier 1 (sometimes vehicle manufacturers), and is bound to be squeezed by strong suppliers and strong customers, with limited bargaining power.

Automotive PCB companies have better business cycles than upstream and downstream

Comparing the net operating cycles of various links in the automotive electronics industry chain since the end of 2017, we found that the net operating cycle of automotive PCB companies is only higher than that of complete vehicles in each link, significantly better than other component links, and also significantly better than PCB manufacturers with little automotive PCB business.

The PCB industry usually faces significant cash flow pressure. Therefore, the good business cycle of these PCB companies that focus on the automotive business indicates that they have a certain level of horizontal competitiveness and vertical bargaining power in the industry.

PCB production is shifting domestically, and automotive PCBs will follow in its footsteps

Since the new century, there has been a clear trend of PCB production shifting from the United States, Europe, Japan, and domestic markets.

We believe that automotive PCBs, especially high-end PCBs, will also be transferred to China in the future, and domestic manufacturers have greater opportunities.

In 2000, the output value of PCB in Chinese Mainland accounted for only 8.1% of the world, but by 2017, the proportion had reached 50.5%. China has become the absolute main force of global PCB production.

Like traditional PCB business, automotive PCB is still dominated by American, Japanese, and Taiwanese companies. Companies with high sales of automotive PCBs include Taiwanese companies Jingpeng and Jianding, American company TTMTech, as well as Japanese companies CMK, MEIKO, and Qisheng. Jingpeng and Xunda are the main companies with a high proportion of automotive business, as well as new energy and high-frequency board business.

The leading manufacturer of high-end automotive panels is Schweizer from Germany. The total market share of the six major automotive PCB manufacturers listed on the A-share market is 12.3%, while the shares of Shanghai Electric Power Co., Ltd. and Eaton Electronics are each around 2.5%. We speculate that the total market share of all A-share and domestic automotive PCB manufacturers is around 20%.

Due to the fact that most downstream Tier 1 automotive manufacturers currently have production capacity in developed countries, the global share of automotive PCB domestic output value is lower than that of ordinary PCBs.

In the future, with the gradual release of China's "engineer dividend", more Tier 1 automotive production capacity will be relocated to China, and the increase in domestic automotive PCB production will also follow.

In 2018, the share of domestic PCB manufacturers in the global automotive industry has significantly increased, with the top six companies' share rising from 10% to 12%. The automotive PCB industry is close to monopolistic competition and has not yet formed an oligopolistic monopoly pattern. No manufacturer can control the prices of the entire industry. Domestic PCB manufacturers still have great opportunities to continue expanding their market share.