First, hybrids and EVs will be "an area where China can leapfrog automotive semiconductor suppliers from the West and Japan," said Freeman. Since China lags behind automotive electronics technologies designed for conventional vehicles, why try to beat the West on Western terms, asked Freeman.
Second, China badly needs to adopt EVs, sooner than later, due to its terribly polluted air quality.
With the Chinese government spending billions of dollars to develop the EV market, Chinese domestic chip suppliers should seize the moment and get stronger in automotive by enabling the EV market, rather than fighting it, noted Freeman.
NXP, by becoming a minority shareholder of the China-based JV, will have access to Chinese government R&D subsidies. Not a bad move on NXP's part.
While the JV will be able to leverage NXP's brand name, which is said to be fairly prominent in the Chinese automotive market, the Dutch chip company will have the right to sell JV-developed products, on behalf of the JV, to markets outside China.
Meanwhile, NXP believes the Chinese JV will find NXP's Silicon-on-Insulator (SOI)-based advanced bipolar CMOS DMOS (A-BCD) technologies attractive, as it develops its own automotive chips that need to be differentiated from others. By partnering with NXP, Freeman said, the JV will have access to process technologies unique to NXP, including high-frequency RF CMOS and SOI.
Subsidies for e-vehicles
But really, how big is China's EV market? With automakers in the West still struggling to sell EVs, why risk so much on a budding market that might not blossom?
In 2012, China saw 12,791 electric and hybrid vehicles sold, contributing to only 0.7 percent of the nation's total car sales, according to NXP.
As of 2012, there were nearly 28,000 new energy vehicles in 25 Chinese cities, and 80 percent were buses. A majority of passenger cars sold in 2012, in fact, were procured by local and central governments.
It's hard to ignore the severe challenges the auto industry faces in promoting electric vehicles to the average Chinese consumer. "Therefore, the government extended its lavish subsidies for private buyers who purchase electric cars," said an NXP spokeswoman.
According to updated subsidies announced earlier this year by the Ministry of Industry and Information Technology, instead of offering subsidies to producers based on auto technologies, the government now provides 16 levels of subsidies for energy-efficient and new-energy vehicles based on efficiency. The minimum subsidy is expected to be more than RMB3,000 (US$491).
The new JV is banking on a future in which aggressive government subsidies will eventually trigger the demand for EVs in China.
CEO for the new startup
Datang, as a state-owned company, is bringing to the JV its IC design expertise along with inside knowledge and familiarity with China's political decision makers, as well as emerging local customers and partners.
Meanwhile, NXP is bringing to the JV the company's decades of experience on the automotive market -- and a new CEO.
The man heading up Datang NXP Semiconductors is Paul Zhang, ex-Philips/NXP Semiconductors executive, who joined NXP again several months ago prior to becoming the new JV's CEO.
Zhang, native to China, is a graduate of Tsinghua Univ. He also spent substantial time studying in the West, including a Master's degree in fiber networks from the University of Calgary and an executive MBA from Fordham University.
Before returning to NXP, Zhang served as senior director at Dolby Laboratories, working in San Francisco and in Greater China, responsible for sales.
Zhang wrote in his LinkedIn page that the new JV is "aggressively hiring people from entry level to executive level in areas such as supply chain management operations, quality management, R&D (architect, analog, digital, layout, testing, verification, qualification and others), sales & marketing (product marketing, AE, SE and others)."
— Junko Yoshida, Chief International Correspondent, EE Times