Lam of the US and ASML of the Netherlands said they expected sales to China to surge later this year despite US export restrictions on equipment used to make cutting-edge semiconductors. Comments from two chip-making equipment companies suggest the Chinese market could surpass industry expectations this year given strong demand for mature process chips used in electric vehicles (EVs).

The companies reported quarterly earnings that beat analysts' expectations, but Lam's sales were lower than a year ago because of a sluggish memory market. The two sides also said they expected sales to Chinese companies to increase in the coming months despite sweeping U.S. restrictions on China's semiconductor industry in October, citing Beijing's use of American chipmaking technology to modernize its military.

Lam is subject to US export restrictions and ASML will face new Dutch government rules on sales to China later this year. But so far, the rules have only affected equipment used to make the most advanced chips. In China's push for more self-sufficiency in production, Chinese customers are buying tools to make mature process chips used in products such as electric cars, mobile phones and personal computers, Lam and ASML said.

Lam initially estimated that the restrictions on China would cost it $2 billion to $2.5 billion in lost revenue in 2023. But the company said it had received a "clarification" of the rules from the US government, and chief financial officer Doug Bettinger said on a conference call that Lam would be allowed to sell "several hundred million dollars" worth of tools that were initially thought to be prohibited from being exported to China. A spokesman for Lam didn't respond to a request for comment on the U.S. regulator's clarification. The company also said it had received about $5 billion in advances, mostly from new customers. "I would admit it has a good presence in China," Mr. Bettinger said of the new group of customers.

ASML says it has an order backlog of about 39 billion euros, equivalent to about two years' worth of tool shipments. Chinese customers dedicated to making mature process chips account for about 30 percent of those orders, Chief Executive Peter Wennink told investors on a conference call. That is a big jump from November last year, when ASML said China accounted for 18 per cent of its then €38bn backlog.

These Chinese chipmakers are focused on markets such as electric cars, which require more chips than cars with internal combustion engines, Wennink said. Most of these chips do not require ASML's state-of-the-art tools. "That's the importance of the mature semiconductor market and it's still going to grow, and that's where the Chinese market can grow strongly," Wennink said.

China's electric vehicle market is growing fast

The views of the two chip-making equipment companies reflect China's fast-growing electric vehicle market. While the electric vehicle market in other countries still relies heavily on subsidies and financial incentives, China has entered a new phase in which consumers are weighing electric vehicles against gasoline-powered ones based on features and price, regardless of state subsidies. By contrast, the United States lags far behind. The United States passed a major threshold for electric vehicles only this year: sales accounted for 5 percent of new vehicle sales. China surpassed that level in 2018.

Half of the world's top 10 electric car brands by sales come from China, with BYD leading the pack. Recent data from Wilson Terminal show that BYD sold 440,800 cars in the first quarter of 2023, including 183,300 cars in March, with a market share of 10.38%. Ranking second is Volkswagen brand, which sold 427,300 units in the first quarter, including 157,600 units in March, with a market share of 10.07%. This is the first time that BYD overtakes Volkswagen to become China's top auto brand in terms of sales volume. It is also the first time that a Chinese brand has monopolized the Chinese auto market in China, ending the history of nearly 40 years of joint venture brands monopolizing the Chinese market.

Today, BYD has about 70 percent of the electric bus market in Japan and plans to sell 4,000 electric buses in the country by 2030. Byd has also introduced electric forklifts in Japan. Electric forklift solves the problem of oil forklift causing pollution to agricultural products, which is highly recognized by customers.

According to the China Association of Automobile Manufacturers, in 2022, the production and sales of new energy vehicles in China reached 7.058 million and 6.887 million, respectively, up 96.9 percent and 93.4 percent over the previous year. The export of new energy vehicles reached 679,000 units, a 1.2 times increase over the previous year. Such a market has also attracted foreign auto makers to invest in China, with Volkswagen Group recently announcing at the Shanghai Auto show that a development, innovation and procurement center in Hefei will cost about 1 billion euros. The goal is to cut development time in China by around 30 percent and better cater to customer tastes. To this end, local suppliers should be involved in the development as early as possible. The development center, with more than 2,000 employees, is scheduled to open in early 2024.

With the trend of automobile electrification and intelligence, the demand of automobile chip explodes. According to statistics, the chip consumption of a new energy vehicle is about 1000 ~ 2000, which is 2~4 times that of a traditional fuel vehicle. In 2022, the average cost of automotive chips will be $500-600 / car, which corresponds to the domestic automotive chip market size of about 100 billion yuan. It is expected that the future automotive chip cost will still significantly increase. Electric vehicles are becoming a new growth point in China's semiconductor market.