Nvidia’s automotive segment mainly sells chip systems for assisted driving. CEO Jensen Huang has touted it as the company’s “next billion-dollar deal.”

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BEIJING — U.S. chipmaker Nvidia this week comfortably beat analysts’ expectations for key revenue sectors — except autos — as Chinese demand for electric cars slows.

The automotive segment primarily sells chip systems for assisted driving. Nvidia CEO Jensen Huang called it the company’s “next billion-dollar deal” last year.

But the unit’s growth has slowed this year. Huang did not repeat such predictions in the latest earnings release.

In the three months ended July 30, auto sales declined 15% sequentially — the first sequential decline in more than a year.

The sequential decline primarily reflects lower overall auto demand, particularly in China.

Colette Kress

Nvidia’s Chief Financial Officer

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

“The sequential decline primarily reflects overall lower automotive demand, particularly in China,” Nvidia CFO Colette Kress said in a statement on the quarterly results.

She said demand for self-driving systems helped automotive sales soar 15% compared to the same period last year.

Though auto sales still make up only a fraction of the chipmaker’s business, they’ve grown rapidly from just over $100 million in the quarter two years ago.

China is the largest car market in the world. In recent years, the country has become a driver of the global development towards electric cars.

Local EV providers like BYD and Xpeng are creating stiff competition for traditional automakers, in part by emphasizing technological features.

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

He said the sequential decline in auto sales could be due to excess inventories at Chinese manufacturers as well as their downward revisions to sales forecasts for high-end vehicles in the next two quarters.

Xpeng manager switches to Nvidia

Nio, which sells high-priced electric cars, will release its quarterly results on Tuesday. Earlier this month, Xpeng reported a bigger-than-expected second-quarter loss.

Xpeng is one of the few local electric car manufacturers to offer driver assistance software in select Chinese cities. Tesla’s “Full Self-Driving” technology for navigating city streets is not yet fully available in China.

On Thursday, Xinzhou Wu, former head of autonomous driving at Xpeng, said he will start a new job at Nvidia on Friday. That’s according to Wu’s statement on social media, which included reposting a picture of himself with Xpeng CEO He Xiaopeng and Nvidia’s Huang.

Nvidia is building an automotive technology company. Pictured here are the autonomous vehicle test cars at the company’s auto repair shop in Santa Clara, California on June 5, 2023.

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Counterpoint’s Wang pointed out that Nvidia’s products are focused on the high-end automotive segment. “In the mid-range market, NVIDIA still faces competition from other vendors like Horizon Robotics, Mobileye, and some startups,” he said.

Other automotive chip manufacturers are also seeing sequential sales declines in this segment.

Analog Devices on Wednesday reported automotive sales of $747.6 million for the three months ended July 29, down 5% sequentially.

“We think [Analog Devices] could well be a leading indicator of the peaking of the automotive chip cycle,” said David Wong, technology strategy research analyst at Nomura, in a report on Thursday. He noted that Mobileye’s and Qualcomm’s automotive chips also saw sales decline from the previous quarter.

A $10+ billion opportunity

Nvidia only jumped at the opportunity in the automotive space relatively recently.

In an annual report in late February 2022, the company claimed that $11 billion worth of automotive projects were planned over the next six years.

A year later, Nvidia announced in its annual report that its automotive project pipeline was now worth $14 billion over the next six years.

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But in May, Nvidia said that auto sales growth moderated sequentially “as some NEV customers in China adjust production schedules to reflect slower-than-expected demand growth.”

The company said it expects that momentum to continue for the remainder of the calendar year.

According to the China Passenger Car Association, retail sales of new-energy passenger cars fell 3.6% from June to 641,000 vehicles in July. It said sales for the first seven months of the year were up about 36% year over year.

The slowdown in the fast-growing segment comes as the spread of new energy vehicles, which include hybrid and battery-powered cars, reached about a third of new passenger cars sold in China this year, according to the trade association.

In the longer term, car manufacturers continue to plan to purchase parts for driving assistance.

Hesai, a maker of LiDAR (light detection and ranging) devices commonly used in driver assistance systems, reported second-quarter sales of 440.3 million yuan ($60.7 million) this month, beating the the company’s previous forecasts.

The company shipped around 60,000 LiDAR devices with driver assistance systems last year and has already exceeded this number in the first half of this year. Overall, CEO David Li expects the number of units to more than double this year.

He said the company is shipping with six OEMs this year, with 11 planned for next year.

“It’s not really the hardware itself.”

“It’s about the combined experience that the OEMs offer the customer as an ADAS function,” he said, referring to the advanced driver assistance system.

Hesai this month announced further collaboration of its products with Nvidia’s autonomous driving system and simulation platform.

Source : www.cnbc.com

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