AI Boom Drives Component Crunch for China's Smart Car Makers

Rising Prices, Tight Supply Test China's Intelligent Vehicle Push

Beijing - China's smart vehicle makers are facing their toughest supply test in years as a global components crunch collides with an artificial intelligence boom that is diverting electronics capacity away from cars. Prices of printed circuit boards (PCBs) and multilayer ceramic capacitors (MLCCs), two parts that make vehicles intelligent, have more than tripled over the past year, and industry officials say it could take at least a year for supply to catch up with demand.

The squeeze comes at a delicate moment for China's auto industry, which is betting heavily on software-defined, assisted-driving vehicles to lift sales in a shrinking market. Overall passenger car deliveries plunged 21 per cent year on year in July to 1.46 million units, according to the China Passenger Car Association (CPCA), even as manufacturers race to equip more models with lidar, advanced cockpit displays and autonomous-driving computing platforms.

AI Data Centres Outbid Carmakers for Scarce Parts

The root cause is the explosive growth of AI infrastructure. PCBs are used alongside graphics processing units and application-specific integrated circuits in AI servers, while MLCCs - dubbed the "rice of the electronics industry" - regulate and stabilise electrical currents in devices ranging from smartphones to data centres. With AI data centre buildouts accelerating worldwide, component makers are prioritising high-margin technology clients over automotive customers.

"The components, though small, play a key role in the automotive industry's effort to make millions of cars more autonomous and smarter," Chen Jinzhu, chief executive of the consultancy Shanghai Mingliang Auto Service, told the South China Morning Post. "Market demand for electric vehicles is falling, but component supply remains a thorny issue for leading players since they focus on intelligence to make their cars attractive to consumers."

Industry officials estimate the global auto sector is facing a 20 to 30 per cent shortage of components, with prices more than tripling over the past year. Data from the India Printed Circuit Association shows PCB prices surged more than threefold in 12 months to about 330 yuan (US$49) per sheet, while some MLCC components rose from 10 yuan per 1,000 units to 40 yuan in early 2026 amid a severe shortage caused by surging demand from AI servers and data centres, according to traders.

Memory Chips Deliver the Heaviest Cost Blow

For carmakers, the heaviest pressure comes from memory chips. Dai Yong, chief financial officer of Geely Auto, mainland China's second-largest carmaker, said in a recent interview that the price jumps in PCBs and MLCCs had only a minimal impact on earnings because the parts remain a small slice of total expenses - but memory is another story.

"Carmakers' cost pressure mainly comes from memory chips," Dai said. "But a lack of PCBs and MLCCs disrupts production and prevents assemblies from running smoothly." He added that memory chips for data buffering, processing and storage - essential to autonomous driving - had been squeezing carmakers' profit margins since early 2026.

The impact is visible in the accounts of premium EV makers. William Li, chief executive of Shanghai-based Nio, said last month that surging raw material prices, particularly memory chips, had added 20,000 yuan to the production cost of each vehicle. Memory chips used in the AI industry are more sophisticated and expensive, generating higher added value for manufacturers, who typically allocate more products to high-tech clients rather than to EV makers and car component producers, according to Qian Kang, owner of a vehicle circuit board factory in eastern China's Zhejiang province.

Japan's Automakers Feel the Same Squeeze

The crunch is not confined to China. Japanese automakers, which rely on the same globalised supply chains, are bracing for renewed disruption as AI demand reshapes semiconductor economics. Toyota and Honda led a chip supply alliance announced in January, teaming up with around 20 suppliers under the Japan Auto Parts Industries Association to keep semiconductor supply flowing amid mounting geopolitical risks and capacity constraints.

The stakes became clear at the start of the year, when Honda was forced to shut down production facilities in Japan and China amid a severe shortage of vital chips. The 2026 automotive market is being hit by a DRAM and NAND shortage driven by AI demand, with memory makers prioritising high-margin AI products over lower-value automotive and consumer chips - the same dynamics now squeezing China's market.

Japan also sits at the centre of the passive-components industry that is tightening supply: Murata Manufacturing is the world's largest MLCC producer, followed by TDK and Taiyo Yuden. With MLCC lead times stretching beyond 20 weeks for automotive and AI server grades, Japanese carmakers and their electronics suppliers face the same premium pricing and allocation pressure as their Chinese counterparts - even as the shortage tests Japan's electronics export machine on the supply side.

Suppliers Rethink Strategy as Shortage Persists

Along the supply chain, companies are adapting. Ecarx, a technology firm that provides the "intelligent brain" for digital cockpits and preliminary self-driving systems, says deep market knowledge and a full-stack development platform help it dodge risks in an undersupplied market.

"Market know-how can effectively help us plan ahead," said Lily Cai, executive vice-president of Ecarx. "Ecarx established multiple major partnerships with key component suppliers to deepen innovation as early as last year. Those collaborative efforts gave us an advantage in securing sufficient supply and outpacing our peers in product development." In the second half of 2025, Ecarx signed agreements with PCB maker Victory Giant Technology, semiconductor firm Monolithic Power Systems and tech giant Samsung to build high-performance, AI-powered computing platforms for intelligent vehicles.

Others are simply paying premiums. To secure enough parts, carmakers are paying steep premiums for everything from memory chips to MLCCs to keep production running. Analysts warned that despite the mainland market's falling sales, a push by manufacturers to build smarter cars could worsen the shortages, since every additional computing platform adds demand for the very components in shortest supply.

Intelligence Race Collides with Falling Demand

The CPCA's July data shows the depth of the market slowdown, with deliveries falling for a tenth consecutive month. Yet the industry's bet on smart features has only intensified. Some 12 per cent of new cars priced between 150,000 yuan and 200,000 yuan were fitted with lidar sensors - which help cars map terrain - in 2025; the proportion climbed to 27 per cent in the first quarter of 2026, CPCA data shows.

That paradox, falling volume alongside rising electronics content per car, is exactly why the component squeeze hurts. Every additional sensor, cockpit screen and computing platform adds demand for the parts in shortest supply, and the memory chips essential to autonomous driving are the most expensive item in the basket. The rising costs come as Chinese carmakers are also locked in a prolonged price war, making it harder to pass expenses on to consumers.

What to Watch For

The supply picture is unlikely to ease quickly. Industry officials estimate it would take at least a year for the global supply chain to ramp up production of PCBs and MLCCs to meet demand, and AI infrastructure spending shows no sign of slowing. For Chinese carmakers, the near-term priority is securing allocation from memory and component suppliers while managing costs that could reach consumers through higher prices or trimmed feature lists.

For Japan and the wider Asia-Pacific market, the episode is a reminder that the AI boom's ripple effects now reach deep into the auto industry. From Tokyo to Shenzhen, the race for scarce components will shape which automakers can keep their intelligent-vehicle promises on schedule - and which are forced to slow their most ambitious launches.

By Kenji Tanaka, Staff Writer

This article was produced with AI-assisted research and editorial support. Sources: South China Morning Post, CnEVPost, China Passenger Car Association, IndexBox, Tom's Hardware.