Tesla’s newest shift and Thailand’s potential energy issues | Invesloan.com

Hi everyone! This is Lauly from Taipei.

As I was writing this newsletter, China unexpectedly announced the immediate start of military drills surrounding Taiwan, just days after the democratically ruled island’s new president, Lai Ching-te, was sworn in.

Lai, who is from the same China-sceptic Democratic Progressive party as his predecessor Tsai Ing-wen, is considered a “separatist” by Beijing. During his inauguration speech on Monday, he urged China to accept Taiwan’s existence.

I actually got several texts from tech executives saying they sensed “firmness” in Lai’s speech and that they wondered how Beijing would react. Many of these suppliers already started to build capacity outside of Taiwan after China conducted live-fire military drills around Taiwan in the summer of 2022.

Amid the geopolitical uncertainties, I can feel the excitement as the tech industry gears up for Computex, one of the most important tech fairs in Asia, in a couple of weeks. People are particularly excited because this will be the first time since Covid that Computex will host CEOs from Nvidia, Advanced Micro Devices, Intel, Qualcomm, Arm and more. Their key partners, including Quanta Computers, Pegatron, Asustek Computer and Acer, are also preparing big press events.

The key theme of the event will almost certainly be artificial intelligence. The tech supply chain has already witnessed exponential growth since last year driven by AI servers, thanks to the demand for generative AI. Nvidia on Wednesday reported another record revenue of $26bn. The PC industry is also excited about the potential for AI to reinvigorate the sector after it hit a slowdown in the second half of 2022.

AI is also a potential blessing for Sharp. The Japanese electronics maker, a Foxconn affiliate, recently announced plans to stop production at its major display factory in Sakai, a seaside city in Osaka, and transform it into an AI data centre. A source close to Foxconn told me that the China-driven supply glut in the LCD display industry made it hard to turn the factory around.

“However, the Sakai factory was designed with massive electricity supply given the display technology, plus it is located close to the sea, making the facility ideal to turn into an AI data centre, which is power-hungry and requires liquid-cooling measures,” the source said.

Tesla’s latest shift

Tesla has asked suppliers to start making components and parts outside of both China and Taiwan by next year at the earliest to mitigate rising geopolitical risks, Nikkei Asia’s Lauly Li and Cheng Ting-Fang write.

A variety of suppliers have received such requests, including makers of printed circuit boards, displays and electric control units, according to six supply chain executives with direct knowledge of the matter.

“We got the request from Tesla that they hope to have components that are both OOC and OOT, meaning out of China and out of Taiwan,” a source from a Taiwan-based supplier to Tesla and others told Nikkei Asia. “They hope such a proposal can materialise from next year’s new projects.”

The requests came before Taiwan’s new president took office, and before the US announced sharply higher tariffs on Chinese EVs. For companies with supply chains touching Taiwan, China’s latest military drills around the island will only add to concerns over potential disruptions.

AI-in-a-box

China’s artificial intelligence groups have found a new route to commercialise the technology by producing “AI-in-a-box” products for companies to run generative AI on their own premises.

The emerging trend is a threat to the AI cloud computing services offered by the country’s big tech groups such as Alibaba, Baidu and Tencent, write Ryan McMorrow and Nian Liu for the Financial Times.

In the lead for “all-in-one” AI machines is national champion Huawei, which has signed up more than a dozen start-ups to bundle and market their large language models with its AI processors and other hardware. Its partners include groups such as Beijing-based Zhipu AI and language specialist iFlytek.

Chinese groups want the AI boxes to bring the advances of generative AI to on-premise, or private cloud, set-ups, which are seen as more secure and accounts for about half of the market.

Huawei estimates the Chinese market for these machines will hit Rmb16.8bn ($2.3bn) this year. Analysts at Minsheng Securities forecast the government market for AI boxes could reach Rmb450bn by 2027.

Painfully popular

Thailand’s industrial parks face an increasing risk of power supply shortages as a flurry of printed circuit board investments come online next year, writes Nikkei Asia’s Lauly Li. PCBs are the material on to which chips and components are mounted before being assembled into final products.

The south-east Asian country is a top choice for relocation of the PCBs away from China and Taiwan, according to the Taiwan Printed Circuit Association, a leading industry body that represents 700 PCB makers and their suppliers. Many of those investments are happening in clusters.

“Take Prachinburi province, for example. There are 10 new PCB manufacturing facilities as well as four new materials and equipment suppliers’ factories,” TPCA Chairman Maurice Lee said. “We are concerned about the surge in demand for electricity and water when the new factories gradually run to full capacity.”

Looking inward

Semiconductor Manufacturing International Co and ChangXin Memory Technologies (CXMT) — China’s top contract chipmaker and memory chipmaker — are gearing up to localise supplies of key chip materials and chemicals to counter continued US export controls, Nikkei Asia’s Cheng Ting-Fang reports.

SMIC is asking the chip developers it serves to help it screen, verify and adopt local providers of wafers, chemicals, gases and other materials, while CXMT has started to vet local suppliers to replace foreign ones.

The latest localisation drive goes beyond efforts to use more domestic chipmaking equipment, a segment that was directly hit by tighter US regulations, and extends to the supply of hundreds of chemicals, materials and gases, potentially pushing foreign suppliers out of the market.

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