Summary of Key Points
The listing of Changxin Technology, a leading domestic DRAM chip manufacturer, has sparked intense discussion in the automotive industry. Six years ago (in 2020), BYD invested $19.8 billion in its initial round of financing, despite Changxin's significant losses and various doubts regarding its technological capabilities. Today, Changxin has grown to become China's number one DRAM manufacturer and the fourth-largest in the world. Many automotive companies, including BYD, NIO, and Chery, have invested in Changxin to secure supplies of automotive-grade memory chips. This trend is driven by the industry shift in production capacity towards AI-related HBM chips, which has led to increased prices and shortages of such chips. Analysts predict that the DRAM market will remain tight in the coming years, with both demand and prices expected to rise significantly.
1. BYD's Investment in Changxin Six Years Ago: From Doubt to Amazement – The Success of Patient Capital
Six years ago, when BYD invested in Changxin's initial financing round, the company was seen as a risky venture with substantial accumulated losses, high R&D costs, and technological shortcomings compared to international giants. However, BYD’s bet paid off: Changxin has now become China's number one DRAM manufacturer and the fourth-largest in the world. BYD did not directly purchase shares but instead invested through a private fund; even Chairman Wang Chuanfu personally acquired 0.014% of the company’s stock. BYD’s secretary, Li Qian, noted that they never expected Changxin to develop so rapidly, attributing this success to both the demand for domestic alternatives and the rewards of patient investment.
2. Automotive Companies Investing in Changxin: Not for Stock Profits, but to Secure Chip Supplies
Not only BYD but also NIO, Chery, Xiaomi, GAC, and other automotive companies have invested in Changxin through strategic placements (pre-listing stock purchases) or indirect investments. The primary reason is to ensure a steady supply of chips for their vehicles. New energy vehicles require high-quality memory chips that can withstand extreme temperatures and vibrations. However, chip manufacturers are shifting production capacity towards more profitable AI-related HBM chips, leaving automotive companies in short supply of the chips they need. By investing in Changxin, these companies can secure chip supplies in advance. For example, BYD and Changxin have jointly established a testing laboratory for automotive-grade memory chips to supply luxury vehicles like Tengshi and Yangwang.
3. Rising Prices and Shortages of Automotive Grade Chips: AI Competing for Production Capacity
Since October last year, prices of automotive-grade memory chips have been on the rise, with increases of up to 180% expected between March and June 2026. The reason is simple: leading chip manufacturers are focusing on higher-profitting AI chips (such as HBM), reducing capacity for automotive-grade chips. For instance, Beijing Junzheng has reported a severe shortage of DRAM chips, with only limited new production capacity expected until the second half of next year. Without securing supplies in advance, automotive companies could face production delays or even inability to produce vehicles.
4. Analyst Predictions: A Boom for the DRAM Market in the Next Few Years
Several analysts are optimistic about the DRAM market:
- CITIC Construction Investment predicts that price increases will last longer and be more significant than expected, with the market reaching $457 billion by 2026 (more than double the size of 2023).
- Morgan Stanley is even more bullish, predicting a chip shortage that will continue until 2028, with prices rising by at least 25% this year. This means chip manufacturers will earn more profits, but automotive companies will face higher costs, making it even more crucial to invest in the supply chain.
5. BYD’s “Dual Strategy”: Investing in Others While Developing Own Chips
BYD has not put all its eggs in one basket. It collaborates with Changxin to secure chip supplies while also investing in its own in-house R&D of automotive chips. This approach ensures a diversified supply chain, allowing the company to continue producing vehicles even if external chip shortages occur. Many automotive companies agree that a secure supply chain is essential for stable production.
In Conclusion
Changxin’s rise represents a victory for domestic chip manufacturers. The surge in investment from automotive companies is driven by the shortage of chips. The competition between AI and automotive industries for chip resources will continue, and price increases and shortages are likely to become the norm in the coming years. As a result, the partnership between automotive companies and chip manufacturers will become even tighter.