As a massive wave of vehicle electrification comes online in the coming years, demand will continue to grow for semiconductors in the auto industry. In this Motley Fool Live segment from "Semiconductor Revolution," recorded on Feb. 17, Fool contributors Jose Najarro, Danny Vena, and Nicholas Rossolillo discuss how new automotive technologies will drive the future demand for semiconductors.
Jose Najarro: The automobile industry is set to have a compounded annual growth rate of 12.3 percent through 2025. I think anything growing at those levels for the next 3-4 years is pretty impressive. The reason for this growth is not just the overall electric vehicles, but that is a major trend. The battery and electric vehicles are growing, but we're also seeing the growth in Advanced Driver Assistance Systems, pretty much self-driving car. One thing to note is that, hey, just because not every electric vehicle is going to be a self-driving car and not every self-driving car also will tend to be electric vehicle. You can mix and match to some extent. Also they are seeing an increase in infotainment and telematics systems. Those three systems are really driving the amount of chips needed in the automotive industry.
For example, the average battery electric vehicle produces three times more semiconductor revenue than a vehicle with traditional internal combustion engine. Again, this is a market that is growing at dramatic levels. We're seeing Intel, which we're going to talk about in a bit, spin off their smart vehicle portion of their business. Nvidia during the earnings call, they mentioned that, hey, the drive system is going to be a strong grower in the futures. Numerous companies are producing strong numbers with this electric or this automobile industry. Do you guys have any thoughts in the automobile industry with regards to semiconductors?
Danny Vena: Yeah. When I think about Intel and I think about the fact that it's going to spin off Mobileye, I don't necessarily think they're doing that for any other reason than they are trying to unlock a little bit of shareholder value and maybe get a little cash out of the deal. I don't think there's going to be any, there's no question that Mobileye is going to be one of those companies, particularly when you're talking about these systems that we use for smart vehicles or vehicles that have self-driving technology and it doesn't have to be full level 4, car drives by itself. It can be those driver assistance modules that help with things like cruise control and entertainment systems and some of the other things in the vehicle. I think they're going to spin off Mobileye, but I would guess that they're going to maintain a majority share of that company because I think that's a high-growth industry. But that said, there's a lot of different ways that driver assistance technology can be used that comes short of the full self-driving cars, and all of those are going to require an increased number of semiconductors to power those systems.
Jose Najarro: Nick, anything you would like to add?
Nicholas Rossolillo: Yeah. In general terms, in the auto industry, it was just two decades ago that the cost to produce a vehicle, like 20 percent or so of the cost to manufacturer a vehicle was like 20 percent electronic components. We're headed toward 50 percent. By the end of this decade, the general trend is half of the cost to produce a vehicle is going to be electronics, semiconductors, and related stuff. That's a huge trend, given the world spend so much on automobiles. Like you mentioned earlier, Jose, the advanced driver systems are a big deal.
But just vehicle electrification alone, I think what we're seeing here is just like in the 2010s we saw big, bulky, ugly computers get turned into these guys, super sleek, sexy, high-powered computing little units. I think that's happening into the car now. This estimate that you pointed out, about 12 percent compound annual growth, it does fit in with what a lot of the chip companies that play in this market have been saying recently. They're predicting maybe a little bit of flattening in sales maybe in the next year or two. But over the next 3-4 years, we're going to see some really strong growth as this massive wave of vehicle electrification comes online.
