Tesla has caused a lot of buzz in the global car market by cutting prices across several regional markets. The US, China, Europe, and Japan have all seen a significant drop in prices of Tesla vehicles, with magnitudes ranging from 6% to 20%. The US, in particular, has seen the largest cut in the average price of Tesla vehicles. The price of the RWD version of the Model Y has come down to USD 13,000, showing a reduction of 19.7%.

Tesla Aims to Increase Market Share and Put Pressure on Competitors

Tesla sold 1.313 million battery-electric vehicles (pure electric vehicles) in 2022 and retained its leadership in this niche segment of the car market. However, its market share for battery-electric vehicles has been shrinking from 24.5% in 2020 to 20% in 2021 and just 17% in 2022. This in part has to do with the rising number of entrants this market as well as the rising number of battery-electric models that are being offered by these competitors. Furthermore, China accounts for more than half of the global electric car market. Therefore, Tesla has found that its sales performance in China significantly affects its overall market share.

In the Chinese electric car market, sales efforts are concentrated on “economical” or affordable models that are priced within the range of CNY 150,000~200,000. Before Tesla initiated its recent price cuts, the starting price of the Model 3 had been at CNY 265,900, which is way above the mainstream price range.

However, the price of the Model 3 has been slashed by 13.5%, with the starting price now arriving at CNY 229,900. Since the price difference between the Model 3 and the competing economical models has shrunk to 15%, Chinese consumers that are mostly residing within the CNY 150,000~200,000 range could be much more receptive to Tesla’s messaging. Also, many Chinese carmakers have lately raised prices on their electric models because of high cost pressure. Tesla is thus expected to benefit by taking the opposite approach for pricing.

Turning to the US, the biggest benefit that Tesla has touted for this round of price slashing is the eligibility of its vehicles in obtaining a tax credit of up to USD 7,500. The Inflation Reduction Act of 2022 contains a provision that subsidizes the purchasing of a new electric car with a tax credit. Electric SUV or vans that are priced no higher than USD 80,000 and other types of electric vehicles that are priced no higher than USD 55,000 are eligible. In the case of Tesla’s Model Y, the version with three rows of seats (i.e., a total of seven seats) can apply for the tax credit as an electric SUV, whereas the version with two rows of seats (i.e., a total of five seats) can apply for the same benefit as one of the other types of electric vehicles.

For consumers in the US, the price of the Long Range version of the Model Y in 2023 is now 31.1% lower than it was in 2022 because of the price cut and the tax credit. Besides turning consumers’ heads, Tesla is also putting a lot of pressure on its competitors with this undercutting strategy. After all, Tesla’s vehicle models tend to serve as the base standard for carmakers’ electrified offerings.

Tesla Has a Firm Grasp on Fluctuations in Prices of Key Components, Thereby Making Cost Sensitivity a Competitive Advantage

In addition to discussing the effects of Tesla’s price cuts on itself and competitors, and other important issue that needs to be addressed is why Tesla can lower prices when other carmakers are compelled to raise them. To answer this question, we first turn to Tesla’s profit margin. Compared with its competitors, Tesla has a larger room for profit. Therefore, it can lower prices in exchange for more vehicle sales and market share.

This leads to the question as to how Tesla has attained such a large profit margin. The answer is that Tesla is excelled at managing its cost structure and supply chain. With respect to supply chain management, Tesla takes a different approach and has gotten involved more deeply than do other carmakers. For instance, Tesla directly sources components and do not rely on Tier-1 suppliers for system integration.

By contrast, traditional carmakers assemble vehicles with the finished parts provided by Tier-1 suppliers. From Tesla’s perspective, directly sourcing components and doing its own system integration offer some notable advantages. First, this approach facilitates the adoption of the latest technologies at the component level. Second, Tesla is much more aware of costs and also exerts a greater control over them. On the whole, Tesla has a better sense of the price fluctuations in the upstream than do its competitors.

The degree of Tesla involvement in its supply chain is also reflected in its activities in the global lithium market. The soaring demand and the Russia-Ukraine military conflict caused lithium prices to rise rapidly during the 2021~2022 period. Carmakers now recognize that the only effective way to secure the supply of raw materials and control the costs of these materials is to manage the upstream.

However, Tesla is not simply securing lithium supply contracts. It is also thinking about getting involved in ore mining and metal refining. Tesla’s activities in recent years have led to a capacity crunch in the market for mining and processing lithium ores. Since lithium is incorporated into power batteries through multiple phases of additional processing, carmakers tend to suffer the most when it comes to lack of price transparency.

（Image credit: Tesla LinkedIn）

The demand situation of the global car market deteriorated in 2022 due to the impacts of the Russia-Ukraine military conflict and the ongoing COVID-19 outbreaks across China. However, the demand for automotive lighting products during the same year was propped up by two developments. First, the penetration rate of LED headlights (headlamps) rose further. Second, there were significant advances in technologies related to smart headlights, marker lights (lamps), and smart ambient lights.

Furthermore, costs surged for plastics during 2022, so suppliers for automotive lighting products had the opportunity to keep their prices steady or raise them. Hence, TrendForce estimates that the value of the global market for automotive lighting products has come to US$32.68 billion for 2022, reflecting a YoY growth of 4%.

Looking ahead, development trends in the automotive lighting market include personalized products, communication displays, solutions for ADAS, and improvements related to safety functions. TrendForce currently forecasts that the market value will scale up to US$34.314 billion for 2023, showing a YoY growth of 5%.

In addition to improvements in adaptive headlights and tail lights (lamps), TrendForce points to several other product categories that have gained greater importance and captured the attention of carmakers, automotive lighting suppliers, LED suppliers, and drive IC suppliers. Examples include marker lights, (smart) ambient lights, and solutions for light-signaling projection. The aforementioned market participants have been proactively developing offerings under these categories. Going forward, carmakers will continue to bring surprising and innovative ideas to the development of automotive lighting. This, in conjunction with the promotion of ADAS and automotive driving technologies, will create limitless market potential for automotive lighting suppliers.

According to TrendForce’s “Global LED Industry Data Base and LED Player Movement Quarterly Update” report, demand for high-standard LED products in the lighting market will enter a growth stage. Generally speaking, the price of lighting LED products is stable. However, due to the recent rise in global raw material prices, the unit price of products looks to trend higher. Coupled with high demand for energy conservation from governments around the world, the output value of the lighting LED market in 2022 is forecast to have an opportunity to reach US$8.11 billion, or 9.2% growth YoY. In the next few years, the scale of the lighting LED market will continue growing due to the promotion of human centric lighting (HCL), smart lighting, and other factors and is expected to reach US$11.1 billion by 2026, with a compound annual growth rate (CAGR) of 8.4% from 2021 to 2026.

TrendForce further states, despite the continuing impact of the pandemic in 2022, the pervasiveness of vaccines and the recovery of economic activities coupled with the rigid demand associated with the lighting market as a daily necessity, global “carbon neutrality,” and the growing requirements of the energy conservation agenda, have moved numerous major powers to realize net-zero emissions through measures such as energy efficiency and low-carbon heating in recent years. However, lighting is a leading energy consumer in buildings, accounting for 20% to 30% of total building energy consumption. LED penetration will deepen, driven by the high demand for energy conservation and policies and regulations requiring the upgrade of aging equipment. In addition, smart lighting can also achieve the purpose of timely energy conservation. Therefore, there is strong demand for the introduction of LED lighting and smart lighting upgrades in commercial lighting, residential lighting, outdoor lighting, and industrial lighting, which further drives demand for high-standard LED products including high light efficiency, high color rendering and color saturation, low blue light HCL and smart lighting devices.

The gradual recovery of the lighting market is clearly reflected in the 2021 manufacturer revenue rankings. Lighting LED manufacturers including Samsung LED, ams OSRAM, CREE LED, Lumileds, Seoul Semiconductor, MLS, and Lightning have all posted revenue growth. MLS is still the leading manufacturer of lighting LEDs, ranking first in revenue, with an annual revenue growth rate of 34% in 2021. ams OSRAM, Lumileds, CREE LED, and Samsung LED primarily took advantage of orders for industrial, outdoor, and horticultural lighting last year, posting annual revenue growth of 26%, 18%, and 8%, respectively.

In terms of pricing, as demand in the lighting industry gradually recovered in 2021, facing demand for higher specification terminal application products and the impact of rising overall costs in raw materials and operations, LED packaging factories no longer adopted pricing strategies to capture additional market share, allowing lighting LED product pricing to stabilize and rebound in 2021. In terms of product categories, the average market price of medium and low-power lighting LED products (less than 1 watt, excluding 1 watt) such as 2835 LED, 3030 LED, and 5630 LED, posted an annual growth rate of 2.1~4.4%. For high-power lighting LED products (above 1 watt) such as ceramic substrate LEDs and 7070 LEDs, average annual market price growth was as much as 3.0~6.0%. TrendForce expects lighting LED pricing to further stabilize in 1H22.

Micro LED large-sized displays will move towards the home theater and high-end commercial display markets and the revenue of Micro LED large-sized display chips is estimated to reach US$54 million in 2022, according to TrendForce’s latest research. By 2026, revenue is expected to grow to US$4.5 billion with a compound annual growth rate of 204%. In addition, technical obstacles will be conquered one by one over time. The development of Micro LED large-sized displays will peak from 2026 to 2030 and the one year revenue of Micro LED chips has the opportunity to reach tens of billions of dollars.

In recent years, major global brands in various regions have released Micro/Mini LED self-emissive large-sized display products. Samsung, the world’s leading TV manufacturer, released a 146-inch TV, “The Wall,” in 2018 and continues to release 75-inch, 89-inch, 101-inch, 110-inch, 219-inch, and 292-inch large tiled wall displays at CES every year. Due to the evolution of different application scenarios and technologies, the future development trend of Micro LED large-sized displays will be in home theaters, corporate headquarters, and boutique stores. Commercial indoor and outdoor large-sized displays are mainly based on Mini LED self-emissive large-sized displays. In order to satisfy the requirements of close indoor viewing, Micro LED large-sized displays require a theater-level experience, seamless tiled display splicing, pursuit of zero borders, thin design, and competitive pricing. Thus, active matrix (AM) would be the first choice for display design.

TrendForce states, current Micro LED large-sized displays still face the dual challenges of technology and cost including Micro LED chip cost, and the three key technologies of backplane technology, driving technology, and the mass transfer process. In terms of Micro LED chip cost, due to the enormous number of chips used and the need for consistent wavelength uniformity to achieve perfect display quality, the clean room level requirements for epitaxial and chip processes, control of process conditions, and inspection and maintenance during processes are very strict, greatly increasing relative process defect rate and overall cost. In terms of mass transfer, the current mass transfer technologies used in Micro LED large-sized displays include pick-and-place technology and laser transfer technology, each with its own advantages and disadvantages. TrendForce believes that, although current Micro LED mass transfer technology is still in the product development and adjustment stage, there have been no real quantitative achievements. However, in terms of pick-and-place mass transfer equipment capacity, using 10cm2 transfer stamps to transfer 34*58µm Micro LED chips, production capacity (UPH; Unit per Hour) is approximately 7 million units. If the laser mask opening of laser mass transfer technology is 8 square millimeters, production capacity is approximately 12 million units. No matter which kind of transfer technology, the mass transfer capacity of Micro LED large-sized displays needs to reach at least a 20 million unit level of efficiency and 99.999% yield in the future to meet the conditions for mass commercialization.

Active matrix design will abet the development of Micro LED technology

In terms of backplane and drive technology, passive matrix (PM) drive design is based on a PCB backplane with a passive drive circuit structure, using MOSFET as the current switching element. Therefore, overall structure is more complex and requires a wider placement area for circuit components. In addition, when dot pitch is reduced to less than P0.625, the PCB backplane will encounter the challenges of line width and line space mass production limitations and rising cost. Thus, the current technological state of the passive matrix (PM) drive design is more suited to large-sized display applications utilizing dot pitches greater than P0.625 and equipped with a Mini LED. However, for consumer Micro LED TVs employing a dot pitch less than P0.625, active matrix (AM) drive design will become the new direction of display design. Since a TFT glass backplane with LTPS switching technology is considered mature technology by panel manufacturers, it is necessary to adjust certain portions of the manufacturing process and parameters to precisely control and drive Micro LED current.

In addition, in order to achieve seamless tiled display splicing technology, glass metallization and side wire electrode glass will become further technical challenges. As resolution moves higher and the dot pitch is reduced, the front circuit of TFT glass must be guided to the back along the side or by using through-holes. At this time, glass metallization technology becomes key. Since current glass metallization technology is still afflicted with technical bottlenecks resulting in high cost due to low yield, when these bottlenecks are resolved with future technology, the launch of mass production glass metallization will become the advantage of active matrix backplanes. Future active matrix (AM) drive design with Micro LED chips and seamless splicing technology have the opportunity to become the mainstream technology of Micro LED TV development and the key to unlocking a new wave of Micro LED large-sized display cost optimization.

TrendForce’s 2020-2021 Global Automotive LED Product Trend and Regional Market Analysis research indicates, the global penetration rate of LED headlights exceeds 60% in 2021 with penetration in new energy vehicles (NEV) exceeding 90%, according to TrendForce’s latest investigations. Influenced by growth momentum from increasing automotive market shipments and the rising penetration rate of LED lighting, global automotive LED market value is estimated to be valued at US$3.51 billion in 2021, a 31.8% YoY growth rate. This demonstrates that LED headlights and automotive display LED products remain the main driving force for growth in the automotive LED market.

Although the automotive semiconductor shortage has led to manufacturing bottlenecks among some car manufacturers, since car manufacturers have asked LED producers to continue production, the purchase order status of major automotive LED manufacturers will not be affected before the end of 2021. Among the 2021 revenue rankings of automotive LED manufacturers, the top three companies remain ams-OSRAM, Nichia, and Lumileds. These three account for a combined market share of as much as 71.7%.

In terms of automotive lighting, ams-OSRAM has leveraged stable product quality, excellent lighting efficiency, and cost performance to make it the supplier of choice for the world’s high-end cars and new energy vehicles, including high-flying Tesla among its customers. This year, ams-OSRAM’s automotive LED revenue grew rapidly and has an opportunity to reach US$1.304 billion by year’s end for an annual growth rate of approximately 40.9%. Samsung LED’s PixCell LED has also been successfully integrated into the Tesla Model 3 and Model Y, boosting its automotive LED revenue growth to as much as US$121 million with market share expected to increase to 3.4%.

In terms of automotive display backlighting including dashboard and central console displays, not only are more and more car models equipped with automotive display products, the standard is moving towards larger displays with the current mainstream automotive panel product size at 12.3-inches. Further taking into account features popular in the current market such as HDR, local dimming, and wide color gamut shows that automotive LED market demand will maintain a rapid growth trend in the next five years. This will benefit the revenue of Nichia and Stanley with this year’s market share for these two companies expected to reach 23.1% and 6.6%, respectively.

Relying on the high brightness and compact size of their WICOP product, Seoul Semiconductor’s penetration rate of the automotive headlight market has reached 10% and WICOP has been adopted by car manufacturers including Changan Automobile, SAIC-GM-Wuling, and Nio. Revenue is forecast to reach US$155 million with a market share of approximately 4.4%. It is worth mentioning, benefiting from European customer orders, Dominant has the highest annual revenue growth out of the top ten companies in the industry at 46.3%

For more information on reports and market data from TrendForce’s Department of Optoelectronics Research, please click here, or email Ms. Grace Li from the Sales Department at graceli@trendforce.com