Inventory drawdown is ending, and the auto chip cycle is turning
The shortage wave of 2022, when car-grade chips were nearly impossible to find, is now giving way to a new phase. In the second half of 2026, financial results from leading overseas semiconductor makers have generally improved, supply-chain inventories have returned to healthier levels, and Tier 1 suppliers are seeing steady order recovery. At the same time, AI demand continues to absorb 8-inch mature-node capacity, while 800V platforms and higher-end ADAS models keep spreading through the market. The two-year inventory correction is close to ending.
Deutsche Bank and Bernstein both now describe the second half of 2026 as the start of a structural upswing for automotive semiconductors. This is not a replay of 2022, when nearly every category rose together. The new cycle is shaping up as a split market, with different product lines moving at very different speeds.
From excess stock to replenishment
Between 2020 and 2022, tight wafer capacity and a rapid EV boom pushed the auto industry into a severe chip shortage. Many OEMs cut output or even halted production after supply disruptions. To reduce risk, automakers, Bosch, Continental and other Tier 1 suppliers built oversized inventories, stretching what had been a three-month chip buffer to more than six months. Distributors also stocked up heavily on general-purpose MCUs, low-voltage MOSFETs and automotive power chips. Inventory days surged, and NXP, STMicroelectronics and Infineon all saw peak inventory days rise above 200. Those forward buys pulled demand from the future and set up the downturn that followed.
The turning point came in 2023. EV subsidies were gradually phased out, end-demand normalized, and sales growth in Europe and the US slowed. China’s auto market entered a price war, and OEMs cut production schedules. The chip stockpile built up earlier was then worked down. Consumer electronics stayed weak at the same time, shrinking demand for consumer MCUs and analog chips. Capacity on 8-inch mature nodes, originally tied up in consumer electronics, began flowing back into automotive supply, making generic auto chips more available and pushing prices lower. Basic 8-bit body-control MCUs and low-voltage MOSFETs fell by more than 30% at the worst point, while STMicroelectronics’ STM32 general-purpose series dropped to about 30% of its peak price. Distributors became less willing to buy, and broad-based passive destocking took hold.
Facing the pressure from excess inventory, overseas IDM giants cut wafer utilization, reduced 8-inch foundry orders and delayed capacity expansion. Renesas and onsemi shut down some older SiC lines, while domestic power semiconductor makers also saw utilization rates slip. Earnings across the sector came under pressure.
A turning point in the cycle cannot be judged by a single product price. Five signals now point in the same direction: automaker inventories, Tier 1 orders, chip lead times, vendor revenue and price increases from chipmakers. Together, they support the view that the second half of 2026 is the start of a sustained upcycle.
Inventories are normalizing, and orders are back
Supply-chain stocks have returned to healthy levels, with the earlier backlog mostly cleared. In the first quarter of 2026, inventory days at five major automotive semiconductor leaders, including Infineon and NXP, fell from above 200 days to 120-140 days. Tier 1 supplier inventory-to-sales ratios dropped to 12.2%, back within a safe range. In China, distributors are holding only one to two months of automotive power devices and NOR Flash, leaving little buffer stock. European and US automakers are carrying around 40 days of chip inventory, close to normal. The weakness caused by forced destocking has ended, and concern about renewed shortages is pushing automakers to rebuild strategic stockpiles.
Orders and revenues have also turned higher for two consecutive quarters. Bernstein said global automotive semiconductor revenue rose 11% year on year in Q1 2026 and then climbed another 5% quarter on quarter in Q2. At the company level, NXP reported Q2 automotive revenue of $1.938 billion, up 12% year on year, with automotive accounting for 56% of total revenue. STMicroelectronics’ automotive segment grew 26%, Renesas’ auto business rose 24.8%, and Texas Instruments saw a recovery in automotive analog orders. Leading overseas names have all moved out of negative growth. In China, orders for automotive IGBTs at StarPower Semiconductor and Silan Microelectronics improved sequentially, while shipments of automotive NOR Flash rose for a third straight month, showing that demand is flowing through the chain.
Longer lead times are the clearest sign that supply and demand are tightening. During the downcycle, lead times for automotive IGBTs and MOSFETs were only 8-12 weeks and spot supply was plentiful. As of August 2026, mainstream automotive power devices are taking more than 30 weeks to deliver, and silicon carbide main-drive modules are above 40 weeks, with some orders requiring half a year. Chipmakers are widely using allocation, cash holds and long-term booking agreements. High-end 32-bit domain-control MCUs now have lead times of 28 weeks, and automotive NOR Flash is tight, while low-end 8-bit MCUs remain relatively easy to source. The spread in conditions across categories is now stark.
Price increases have also landed, with a second round of adjustments covering most automotive chip categories this year. In July, Infineon led the latest round, raising prices 10%-20% for automotive IGBTs, high-voltage MOSFETs and automotive power-management chips. STMicroelectronics, onsemi and Texas Instruments followed with higher prices for automotive analog and signal-chain chips. In China, StarPower Semiconductor, Yangjie Technology and INCHANGE Semiconductor lifted prices 10%-25% on automotive power devices. This is not just a cost pass-through. It is the result of a genuine reversal in supply and demand. Texas Instruments said on its earnings call that customer inventories in automotive are already very lean, and even a small pickup in end demand could trigger broad replenishment. Pricing power is likely to remain in place through the second half of the year.
Three tiers are emerging, and SiC is leading
The biggest feature of this recovery is segmentation. It is not a broad rally like 2022. Based on current conditions, the market can be split into three tiers, shaped by demand from 800V architectures, advanced driving systems and basic body electronics, as well as by the pace of local substitution in China.
The first tier includes silicon carbide, high-voltage IGBTs and automotive power analog chips, all of which remain strong. SiC is the leading category in this cycle, driven mainly by the spread of 800V fast-charging platforms. A traditional 400V EV typically uses $200-$300 of power semiconductors per vehicle. That rises to $700-$1,000 on an 800V platform. Main inverters, on-board chargers and DC-DC systems are increasingly using SiC devices to cut losses, improve charging speed and optimize energy efficiency. China’s 2026 sales of 800V vehicles may exceed 4 million units, with SiC main-drive penetration in 800V models reaching 77%. From January to May, the overall SiC attachment rate in China’s EV market reached 30.9%, and full-year growth in the automotive SiC market is expected to exceed 32%. Global 6-inch automotive SiC substrate capacity is fully booked, with top vendors scheduled into 2027. Wolfspeed and Infineon products remain in short supply. In China, StarPower Semiconductor and BYD Semiconductor have already shipped SiC modules in volume, opening a window for capacity release. With additional demand from energy storage and industrial solar, the supply gap in SiC is widening and prices are moving higher.
High-voltage IGBTs are following close behind. Growth in hybrid models is expanding the addressable market, while EVs and hybrids together are driving demand for traction-control IGBTs. China’s automotive IGBT market may surpass 15.7 billion yuan in 2026, up 22.3% year on year. Infineon and onsemi control premium capacity and prioritize overseas OEMs, while domestic brands are raising their share of local suppliers, accelerating localization in power semiconductors. High-voltage automotive PMICs and isolation analog chips are also benefiting from higher vehicle power loads and broader domain-controller adoption, which is extending lead times and keeping price increases near the top of the analog group.
The second tier includes high-end 32-bit automotive MCUs, automotive NOR Flash and automotive DRAM, which are in a mild recovery phase. The MCU market is sharply split: low-end 8-bit body-control MCUs are oversupplied and under price pressure, while domestic makers face intense homogeneous competition. High-end 32-bit MCUs used in cockpit, ADAS and powertrain domains are improving. NXP and STMicroelectronics have some high-end MPU products priced above $60 each. At the same time, 8-inch capacity is being pulled away by AI compute demand, tightening supply and helping prices stabilize. GigaDevice and Chipsea have been moving their local 32-bit automotive MCU products through OEM qualification and into vehicle supply chains, taking some overflow orders from abroad.
Automotive storage chips have also recovered noticeably, and they are now one of the main cost pressures for automakers. Advanced driving systems need large storage and compute buffers. NOR Flash stores cockpit and autonomous-driving software, while automotive DRAM keeps domain controllers running smoothly. AI demand is taking mature flash capacity, and Samsung and Kioxia are reducing 55nm-and-above NOR mature-node output while shifting resources toward HBM and high-end NAND. First-half NOR contract prices have already more than doubled, and the increase is expected to continue in the second half. Suppliers linked to XPeng and Li Auto have publicly warned that second-half supply fulfillment rates for automotive storage may stay below 50%, forcing OEMs to use price locks and long-term contracts. Storage has become the next tight component after power devices.
The third tier includes low-voltage MOSFETs, basic body electronics and general discrete devices, which remain range-bound overall. These parts have relatively low technical barriers and ample global supply. After two years of destocking, channel inventories are comfortable, and demand now only tracks vehicle sales modestly. They are unlikely to see large-scale shortages or price spikes, and they function more as a cost buffer for OEM hardware procurement.
Growth is shifting from vehicle sales to electronic content
This upcycle is fundamentally different from 2022, when the market was driven mainly by vehicle sales. Global EV growth has slowed, Europe’s penetration rate is rising more slowly, and China’s auto market has entered a stock-driven phase. Even so, the semiconductor value per vehicle continues to rise. Software-defined vehicles and the shift in electrical/electronic architecture have become the core growth engine, offsetting swings in unit shipments.
The industry is moving from distributed electronics to domain controllers and central compute platforms. Vehicle electronics are being consolidated from dozens of separate ECUs into three main computing units: power, cockpit and ADAS. While the number of physical chips may fall, the requirements for compute, storage and interfaces are rising sharply, lifting semiconductor value per vehicle. Advanced autonomous driving is also bringing LiDAR, millimeter-wave radar, automotive Ethernet and high-definition cameras onto the car, pushing chip content to 3-5 times that of a traditional gasoline vehicle.
New applications are widening the market ceiling. Electrification in commercial vehicles, autonomous delivery vehicles and special-purpose vehicles in ports and mines is expanding demand for power devices and MCUs. 6G in-vehicle communications and vehicle-road coordination are entering pre-commercial stages, while small-scale high-speed optical interconnect deployment is adding new demand for indium phosphide optical chips and automotive Ethernet chips. Growth is no longer dependent on private passenger cars alone, which makes the demand mix more resilient.
China’s supply chain is also benefiting from a local OEM base and a major localization window. In power semiconductors, StarPower Semiconductor, CRRC Times Electric and BYD Semiconductor hold major shares of China’s automotive IGBT and SiC market. In MCUs, GigaDevice and Espressif are pushing automotive qualification programs. In NOR storage, GigaDevice and Puyuan are seeing growing shipments. Upstream manufacturing, packaging, testing, equipment and materials are also becoming more integrated, strengthening the resilience of the local supply chain.
Risks remain, and they could slow the pace of the upcycle. If consumer demand recovers less than expected, China’s price war continues or EV demand in Europe and the US weakens, replenishment will slow and the cycle will lengthen, limiting price increases in high-end chips. A second risk is that concentrated SiC capacity expansion could create excess supply later on. By 2027, multiple 6-inch and 8-inch SiC substrate lines in China and overseas are expected to ramp, which could pressure lower-end SiC devices and push prices down. A third risk is that if AI capex contracts temporarily, 8-inch wafer capacity could move back toward automotive, easing the shortage. New 8-inch high-voltage power lines from overseas chipmakers are also set to come online gradually, and supply pressure may ease within two years, breaking the current tight balance.
In the short term, from the second half of 2026 through the first half of 2027, OEM replenishment is expected to play out fully, and the shortage in 8-inch mature nodes is unlikely to ease quickly. SiC, high-voltage IGBT, high-end automotive MCUs and automotive storage are likely to keep seeing both volume and price gains, with full-year industry revenue potentially growing in the double digits. Over the medium term, as new global wafer and SiC capacity comes onstream, supply and demand should move from shortage to a more stable balance. The main growth driver will then shift further toward 800V architectures and higher semiconductor content per vehicle.