BYD Has Plan B if Nvidia Chip Supply Cut Off

BYD (1211-HK) possesses a contingency plan to mitigate potential disruptions to its supply of Nvidia (NVDA) chips, currently utilized in its vehicles, according to a top executive at the Chinese electric vehicle manufacturer.

Stella Li, Executive Vice President at BYD, revealed that the company has not received any official directive from the Chinese government regarding the cessation of Nvidia chip usage. However, should such a mandate materialize, BYD has proactively developed an alternative strategy.

“Everybody has a backup. BYD has [a] backup,” Li stated. While Li refrained from elaborating on the specifics of this backup plan, she drew parallels to the global semiconductor shortage experienced during the Covid-19 pandemic, a period wherein BYD encountered “no issue” due to its robust in-house technology development capabilities, enabling swift identification and integration of alternative solutions.

Indeed, BYD has strategically pursued a path of vertical integration, aiming to exert greater control over its supply chain, spanning from automotive manufacturing to proprietary battery development. This strategic approach provides BYD with enhanced resilience in the face of external disruptions. “We have a lot of strong … even deeper technology in-house, so we always have backup,” Li emphasized.

Nvidia, a critical player in artificial intelligence development, has found itself in the complex geopolitical landscape of U.S.-China relations. While the company’s H20 AI chip, specifically engineered to comply with U.S. export restrictions to China, initially faced a ban, it was subsequently permitted for sale following a revenue-sharing agreement between Washington and Nvidia. However, recent reports suggest that China is now discouraging local technology enterprises from procuring Nvidia’s AI chips, signaling a potential shift in policy.

It is crucial to note that Nvidia develops a distinct range of semiconductors tailored for automotive applications. Notably, the Nvidia Drive AGX Orin system is designed to facilitate autonomous driving capabilities in vehicles, and BYD is a confirmed customer of this product.

To date, there is no indication that the Chinese government is contemplating a ban on this particular Nvidia system. Li affirmed that BYD has not been instructed to discontinue the use of any Nvidia products and expressed skepticism regarding the likelihood of Beijing imposing restrictions on the U.S. firm’s automotive chips.

“I don’t think any country will do that, because this automatic will kill Nvidia,” Li commented. “So Nvidia now is the highest market value company, so if they lose the big market from China … nobody wants to see this.”

Analysts suggest that a complete ban on Nvidia’s automotive chips in China would have significant ramifications, not only for Nvidia’s financial performance but also for the broader autonomous driving ecosystem. The potential disruption would incentivize domestic chip manufacturers to accelerate their development efforts, potentially leading to increased competition and innovation in the long term. However, in the short term, it could create challenges for automakers relying on Nvidia’s technology.

BYD’s preparations underscore a growing trend among Chinese technology companies to reduce reliance on foreign suppliers, particularly in strategically important sectors. This drive for self-sufficiency is fueled by geopolitical uncertainties and a desire to foster domestic innovation. BYD’s investment in in-house technology and exploration of alternative vendors position the company to navigate the evolving landscape with greater agility.