This week, American chipmaker Nvidia easily surpassed analysts’ predictions across the board, with the exception of the automotive sector, as Chinese demand for electric vehicles softens.

Chip systems for aided driving are the main products sold by the automobile segment. Last year, Nvidia CEO Jensen Huang hailed it as the firm’s “next billion-dollar business.”

But this year, the unit’s growth has stalled. In the most recent earnings call, Huang didn’t reiterate these predictions.

Automotive revenue decreased 15% from the prior quarter in the three months that ended on July 30; this was the first sequential loss in more than a year.

The sequential decline is mostly due to a decline in global vehicle demand, especially in China.

The division revenue of $253 million fell far short of the $309.3 million forecasted by a FactSet analyst survey.

“The sequential decrease primarily reflects lower overall auto demand, particularly in China,” Nvidia’s Chief Financial Officer Colette Kress said in a statement on the quarterly results.

She said that the desire for self-driving cars contributed to a 15% increase in automotive revenue from the prior year.

Automotive revenue, while still a small portion of the chipmaker’s overall sales, has increased significantly from little over $100 million each quarter two years ago.

The largest auto market in the world is China. The nation has developed into a major force behind the push for electric vehicles on a global scale in recent years. Local EV competitors like BYD and Xpeng are putting established automakers under intense competition, in part by emphasising technology features.

Nvidia’s main market is Chinese original equipment makers, according to Brady Wang, associate director at Counterpoint Research.

According to him, Chinese automakers’ excess inventory and their changes to their high-end vehicle sales predictions for the following two quarters could be to blame for the sequential fall in automotive revenue.

Exec from Xpeng joins Nvidia On Tuesday, Nio, a company that offers high-end electric vehicles, will announce its quarterly results. Xpeng revealed a larger-than-anticipated loss in the second quarter earlier this month.

In a few Chinese towns, Xpeng is one of the few local electric car manufacturers offering driver-assist software. China still lacks access to all of Tesla’s “Full Self-Driving” technology for traversing city streets.

Xinzhou Wu, the former head of autonomous driving at Xpeng, said on Thursday that he would begin a new position at Nvidia on Friday.

Wu claimed as much on social media, where he also posted a photo of himself with the CEO of Xpeng, He Xiaopeng, and Huang from Nvidia.

Wang from Counterpoint noted that the high-end automotive market is where most of Nvidia’s products are centred. “In the mid-range market, NVIDIA still faces competition from other vendors, such as Horizon Robotics, Mobileye, and some startups,” he claimed.

Sequential revenue losses in the sector are also being observed by other automotive chip makers.

For the three months ended July 29, Analogue Devices announced automotive revenue of $747.6 million on Wednesday, a 5% decrease from the same period last year.

“We think [Analog Devices] may well be a leading indicator of the cresting of the automotive chip cycle,” David Wong, a technology strategy research analyst at Nomura, said in a report Thursday. He pointed out that Mobileye’s and Qualcomm’s automotive chips also saw quarter-on-quarter revenue declines.

Nvidia just pounced on the automotive market.

The corporation stated it has $11 billion worth of automotive projects planned over the following six years in an annual report published in late February 2022.

Nvidia reported in its annual report a year later that the pipeline of automotive projects was now valued at $14 billion over the following six years.

However, Nvidia said in May that quarter-over-quarter growth in the automotive market has “moderated as some NEV customers in China are adjusting their production schedules to reflect slower-than expected demand growth.”

The business stated that it “expects this dynamic to linger for the rest of the calendar year.”

According to the China Passenger Car Association, retail sales of new energy passenger cars decreased by 3.6% from June to 641,000 vehicles in July. It claimed that year-to-date sales are up by around 36% from the same period last year.

According to trade association figures, this year saw nearly one-third of new passenger cars sold in China be new energy vehicles, which include hybrid and battery-powered cars. This represents a slowdown in the quickly expanding market.

Longer ahead, automakers still intend to purchase components for aided driving capabilities.

In this month’s report, Hesai, a manufacturer of light detection and ranging (LiDAR) devices frequently used in driver-assistance systems, revealed second-quarter revenue of 440.3 million yuan ($60.7 million), above the company’s earlier projection.

In the first half of this year, the business has already surpassed the 60,000 assisted-driving LiDAR units it supplied in the previous year. Overall, CEO David Li anticipates a more than doubling of units this year.

According to him, the business will ship with six original equipment manufacturers this year and 11 the following.

“It’s not really because of the hardware itself.”

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

This month, Hesai revealed additional product integration with the simulation and autonomous driving systems from Nvidia.

(Adapted from CNBC.com)