By Philip van Doorn, MarketWatch
Semiconductor manufacturers that make parts for electric and autonomous vehicles will enjoy healthy growth for at least the next two decades, advisory firm KPMG said in a report.
Two of the report’s authors discussed their findings in an interview for this article. They are KPMG Principal and Advisory Semiconductor Practice Leader Scott Jones and KPMG National Automotive Practice Leader Gary Silberg.
Click here for the full report, which was published Nov. 20.
The shift to electric cars is one of the biggest changes in the auto industry. Tesla /zigman2/quotes/203558040/composite TSLA +5.04% , General Motors /zigman2/quotes/205226835/composite GM -0.38% and other companies are developing autonomous-driving features that require chips and sensors to function.
Accelerating sales growth
KPMG expects that annual sales for automotive-semiconductor manufacturers to rise from a current estimated $40 billion this year to as much as $200 billion by 2040. That would make for a compound annual growth rate (CAGR) as high as 7.7%. And those numbers may be conservative. KPMG estimates that from 2013 through 2019, the CAGR for automotive chip makers was about 9%.
To put those growth rates in perspective, KPMG says the five-year rolling sales CAGR for the entire semiconductor industry is an estimated 4.8% through 2019.
“We expect longer-term growth for the semiconductor industry to be near this level,” Scott said. The CAGR from 2001 through 2019 was an estimated 5%.
When discussing projections, Silberg said expected growth for the automotive-semiconductor manufacturers was even more profound because global sales of autos themselves aren’t expected to increase. Scott added that “this market will experience higher growth than the semiconductor industry overall.”
You can see, below, that semiconductor stocks have greatly outperformed the broader U.S. stock market over the past three and five years. So the prospect of accelerating sales growth as cars incorporate more electronic components to provide new features that people want could make the automotive-semiconductor group even more of a winner.
KPMG used well-reasoned assumptions to estimate a relatively high growth rate for this industry over the next 20 years. Today only about 2% of vehicles around the world are battery-powered, and KPMG says “a mass market for EVs [fully electric vehicles] is still a decade or more in the future.”
However, the firm cites a majority of analysts who believe that by 2030, more than half of vehicles sold around the world will be electric. KPMG estimates EVs require twice the amount of semiconductor components, by value, as internal combustion engine (ICE) cars.
More technology in cars
Vehicles, and not only electric ones, will feature more integration of hardware and software systems to support new functions, including “infotainment” and cloud functionality to handle the massive loads of data required for semi- and fully-autonomous vehicles.
KPMG listed Intel /zigman2/quotes/203649727/composite INTC +1.59% , NXP Semiconductors /zigman2/quotes/202999625/composite NXPI +0.56% , Nvidia /zigman2/quotes/200467500/composite NVDA +4.26% , Qualcomm /zigman2/quotes/206679220/composite QCOM +2.06% , Texas Instruments /zigman2/quotes/202237907/composite TXN +1.19% and Renesas Electronics /zigman2/quotes/203336587/composite RNECF 0.00% as examples of semiconductor companies “supporting integration,” referencing third-party lists. The first five of those companies make up 35% of the iShares PHLX Semiconductor ETF /zigman2/quotes/209255350/composite SOXX +1.37% .