In terms of industry technology trends: On the one hand, the demand for power supply reliability in the defense and military industry continues to increase, especially in application scenarios such as aviation and aerospace, where power supplies need to work continuously and stably in complex environments such as extreme temperature conditions, strong vibration shocks, and multiple interferences; On the other hand, most weapon equipment platforms have limited space and payload, requiring power supplies to achieve miniaturization and lightweighting as much as possible while improving key performance indicators such as power and efficiency, thereby releasing more space and weight for other core functional components. Therefore, the military power supply industry achieves integration by continuously optimizing circuit and structural design, thereby improving the power density, efficiency, and reliability of products, and ensuring product quality meets requirements through mature production assembly processes and testing technologies. At the same time, digitalization can also replace traditional analog control to further improve product power density and achieve precise monitoring of product working status.

In terms of industrial application trends, informatization is the main direction of modernization construction in China's national defense and military industry today. The National Defense of China in the New Era, the 14th Five Year Plan, and the 2035 Vision Outline propose upgrading plans for modernization, intelligence, and other aspects of national defense equipment, promoting the development of weapons and equipment towards informatization. The informatization of weapons and equipment has brought great development opportunities to the upstream military power supply industry. The application scenarios of military power supply are constantly enriched, and it is widely used in various types of weapons and equipment such as missile borne, airborne, shipborne, vehicle mounted, radar, and ground equipment.

At the same time, with the continuous trade sanctions imposed by Western countries on China in recent years, the policy requirements for "independent and controllable" defense and military industry in China have been continuously increasing. Major military industry customers have gradually increased their procurement share of domestic military power supply brands and begun to promote the national production and replacement of upstream components. Affected by the policy of national military industry autonomy and controllability, it is expected that the domestic military power supply industry will continue to experience a period of increasing prosperity during the 14th Five Year Plan period.

1. Military power supply industry situation

(1) Differences between military and civilian power sources

The indicators for evaluating power supply performance mainly include electrical performance and reliability. Among them, electrical performance mainly refers to the power, efficiency, input voltage range, ripple and other parameter levels of the power supply, while reliability mainly evaluates the stable operation ability of the power supply in various usage environments.
Compared with the civilian field, the defense and military industry have higher requirements for the reliability of power supplies. Often, it is necessary to ensure the stability of power supply in various complex environments such as extreme temperature conditions and strong impact vibrations. If power supply failures occur in weapons and equipment due to power supply problems, the consequences will be very serious. Therefore, downstream military industry customers usually prioritize power supply products that have undergone long-term testing and inspection and have high reliability. Therefore, military power products have a higher technical barrier to reliability compared to similar civilian power products.

(2) Current Development Status of Military Power Supply Industry

The military power supply industry in China started relatively late, and in the early stages, the relevant domestic markets were mainly occupied by foreign power brands such as Vicor and Interpoint. However, with the accelerated development of China's electronic power technology and modernization of national defense and military industry, China's military power supply industry has made significant progress, especially since the 2018 China US trade friction, the country's awareness of "independent and controllable" defense and military industry has been greatly strengthened. As of now, China's military power supply industry has gradually achieved the import substitution of domestic brands for foreign mainstream brands, and continues to promote the direction of national production substitution of upstream components.

(3) The downstream industry demand of China's military power supply industry

(A) The acceleration of national defense construction and the trend of electrification of weapons and equipment drive industrial demand

China's modernization of national defense started relatively late, and there is still a certain gap between some core weapons and equipment and the world's advanced military level. With the continuous shift of the world economy and strategic focus towards the Asia Pacific region, China's neighboring regions such as the Taiwan Strait and South China Sea have become the focus of the world power game. Issues such as overseas separatist forces and territorial sovereignty disputes are becoming increasingly prominent. The severe international situation has made the pressure on China's national defense increasingly apparent, and the demand for national security has forced China to accelerate the modernization of weapons and equipment.

At the same time, driven by a new round of technological revolution and industrial transformation such as artificial intelligence, quantum information, cloud computing, and the Internet of Things, military high-tech with information technology as the core is advancing rapidly, and the trend of electrification of weapons and equipment is becoming more apparent. The "National Defense of China in the New Era" clearly proposes to increase the elimination of old equipment and gradually form a weapon and equipment system with high-tech equipment as the backbone. The "14th Five Year Plan" and the 2035 Vision Outline clearly state the need to accelerate the modernization of weapons and equipment, concentrate on independent and original innovation in defense technology, accelerate the development of strategic cutting-edge disruptive technologies, and accelerate the upgrading and upgrading of weapons and equipment, as well as the development of intelligent weapons and equipment.

The acceleration of national defense modernization construction and the development trend of electrification of weapons and equipment have brought great development opportunities to the upstream military industry supporting industry chain.

(a) Missile weapons and equipment

With the continuous promotion of modernization construction of national defense equipment and the comprehensive strengthening of practical exercises in China, missiles, as an indispensable consumable weapon and equipment for modern armies, will maintain stable and sustained growth in demand along with the increase in equipment costs in our country. In 2022, China's defense expenditure budget was 1450.45 billion yuan. Based on the equipment cost accounting for 41.1% of the defense expenditure in 2017, the defense equipment expenditure in 2021 was approximately 596.135 billion yuan. If we refer to the 8.7% of the total procurement expenditure for missiles and ammunition in the United States in 2020, it is estimated that the annual scale of China's various missile and ammunition markets is about 51.864 billion yuan.

The power system is an important component of missile guidance, power, control, and other systems, and is a guarantee for missiles to achieve precise guidance, control, and other combat functions. The missile power supply system is usually composed of DC-DC power supply and power control circuit, which has the characteristics of fast response time, high power density, high reliability, harsh working environment, small size, light weight, and storage resistance. With the continuous development of missile technology and the increasing demand in the future, missile based power supplies will develop towards digitization, miniaturization, and multifunctionality, with broad market prospects.

(b) Aviation weapons and equipment

At present, there is still a significant gap in the modernization development level of China's aviation equipment compared to the United States. Statistics show that as of the end of 2021, the total number of various types of military aircraft in China was 3285, far less than the United States' 13246. Among them, there were 1571 fighter jets in China's military aircraft, with second-generation aircraft accounting for 50.22% and fifth generation aircraft accounting for only 1.21%, while the fourth and fifth generation fighter jets in the United States accounted for 81.06% and 16.31%, respectively. The first domestically developed fifth generation fighter jet J20 in China entered service in 2017. In order to meet national security needs, the main fighter jet for aircraft carrier platforms will continue to be developed in the future. It is expected that during the 14th Five Year Plan period, many fourth and a half generation and fifth generation main fighter jets in China will enter the stage of assembly or high-speed production, with a large space for upgrades and replacements.

From the cost perspective of fighter jets, the proportion of the avionics system of the second and third generation fighter jets to the single machine cost is usually 10% -20%, while the proportion of the fourth generation fighter jets rises to 30% -35%, and the proportion of the avionics system of the fifth generation fighter jets exceeds 40%. The proportion of the avionics system of electronic fighter jets, early warning aircraft, and reconnaissance aircraft is even higher. With the application of emerging technologies in various fields such as display systems, radar communication, navigation positioning, state perception, and flight management in the future, advanced avionics systems will play a more important role in assisting fighter jets in carrying out patrol, detection, interception, attack and other combat tasks. The overall electrification level of aviation equipment will continue to improve. The upgrading and upgrading of aviation equipment, as well as the development of electrification trends, will drive a significant increase in the demand for integrated electronic equipment and supporting power sources.

(c) Ground weapons and equipment

Military vehicles, represented by tanks and armored vehicles, are the core components of the army's equipment. Statistics show that as of the end of 2019, China had about 5850 main battle tanks, of which the number of first and second generation tanks with relatively backward performance still accounted for 50%, and the equipment structure is severely aging. In combination with the requirements proposed in "China's National Defense in the New Era", such as "increasing efforts to eliminate old equipment and gradually forming a weapon and equipment system with high-tech equipment as the backbone", the third-generation tanks represented by Type 15 and Type 99 will be the trend of equipment replacement in China's army in the future, with a large space for updates and replacements.

At the same time, the modernization process constantly puts forward higher requirements for the mechanization and informatization of weapons and equipment. Mechatronics integration is an important feature of the modernization of armored vehicles. During the development of main battle tanks from the first and second generations to the third generation, they evolved from individual warfare to joint operations, optical aiming to fire control systems, and manual loading to automatic loading. These are all processes of the evolution of mechatronics integration applications. In the future, as the modernization process of our military's installation and replacement of ground weapons and equipment continues to advance, and the level of electromechanical integration continues to improve, it will also further expand the market space for supporting industries such as power supply.

(B) Autonomous and controllable promotion of import substitution in military industry

In recent years, influenced by the international situation, especially since the trade friction between China and the United States in 2018, China has put forward increasingly high independent and controllable requirements for the national defense and military industry supporting industry chain. As an important electronic component of national defense and military weapons and equipment, power supply has gradually expanded its market share with the accelerated development of domestic manufacturers' technology. The import substitution effect is significant, and in the future, the domestic military power supply industry will further realize the nationwide production substitution of components. Affected by the policy of national military industry autonomy and controllability, it is expected that the domestic military power supply industry will continue to experience a period of increasing prosperity during the 14th Five Year Plan period.

In addition, due to the long development cycle of pre research, small batch trial production, sample testing, and product finalization required for China's military weapons and equipment before formal installation, with the development of China's defense science and technology industry, various types of weapons and equipment such as aviation, missiles, ships, and radars continue to increase in number and performance, and corresponding military enterprises and research institutes have put forward more personalized and customized requirements for supporting power supplies.

In the future, domestic power supply manufacturers with certain technological strength and the ability to deeply participate in the development of military weapons and equipment will have more advantages in market competition. The acceleration of import substitution process provides a guarantee for the development of the domestic military power supply industry.

2. Future development trends of the industry

With the progress of power electronics technology and the rapid development of national defense technology industry, the development of military power supply industry has shown trends such as modularization, integration, and digitization, as follows:

(1) Modular

In order to make the power supply equipment more convenient to meet the application needs of various weapons and equipment electronic systems, power supply manufacturers will independently modularize and package the circuits that achieve specific power conversion functions, so that they can be combined with other modular products in any way, and build power system products that meet customer needs in a convenient way. By modularizing the power circuit, the construction of the power system device only requires simple soldering, without the need to connect individual components to each other through leads. At the same time, in order to reduce the current stress (i.e. the ratio of working current to rated current), the electrical system usually requires the use of multiple independent units for parallel operation. By sharing the carrying current equally among modular power sources, the circuit failure rate can be effectively reduced and the normal operation of the entire system can be ensured.

(2) Integration

Integrated design can make the structure of power supply products more compact, improve the power density of the power supply, reduce lead length, and improve the overall system reliability. Especially in applications such as aerospace and missile equipment that require high volume, integrated design can enable power equipment to achieve miniaturization and lightness, thereby reducing takeoff and flight weight, increasing the space of other key functional units, and having a significant advantage in the strict volume, weight design, and parameter allocation of defense and military products. At the same time, the integration development trend of upstream chips and other electronic components also provides a guarantee for the integration of power products.

(3) Digitization

With the rapid development of information technology, the trend of digitalization is constantly accelerating, demonstrating the advantages of digital signal processing technology over analog signals. Through programmable chips, digital control of closed-loop feedback control circuits for power products can be achieved, replacing traditional single parameter analog control and replacing functional and protection circuits in analog circuits. This can simplify peripheral hardware circuit settings and reduce the size of power products; In addition, adopting digital technology and embedded software can achieve real-time monitoring of the working status of the power supply, and control the power supply function of the upper computer, making the power supply more intelligent, with advantages such as high control accuracy, small temperature drift, and strong functional scalability. Digital control has many advantages over analog control and will have broad market applications in the future.

3. Competitive landscape in the military power supply industry

Due to the high requirements for power supply products in the field of national defense and military industry, such as power, efficiency, volume, and reliability, early domestic power supply manufacturers had relatively backward technology, and the domestic market share was mainly occupied by foreign products such as Vicor and Interpoint. With the advancement of electronic information technology in our country, the market size of the military power supply industry, which is a core component of military electronics, has rapidly increased. Especially since the 2018 Sino US trade friction, the country's awareness of "independent and controllable" defense and military industry has greatly strengthened. As of now, China's military power supply industry has gradually achieved the import substitution of domestic brands for foreign mainstream brands, and continues to promote the direction of national production substitution of upstream components.

Military power supplies are the core electronic components of national defense and military weapons and equipment. Therefore, the main participants in the industry are large state-owned enterprises and research institutes under the military industry group, such as China Electronics Technology Group and China Electronics Group. In addition, some private enterprises with military business qualifications also participate in the research and development, production, and sales of military supporting power supplies. Compared to civilian power sources, the military power supply industry has higher market and technological barriers, resulting in a relatively high concentration of the industry. Manufacturers compete in a differentiated manner through their unique research and development capabilities, product performance, and marketing services.

4. Opportunities

(1) Strong support from national policies

Military power supplies are located upstream of the military industry supporting industry chain and are greatly influenced by national defense policies. Military power supplies belong to the category of new electronic components and are regulated by national information technology industry policies. In recent years, the issue of territorial sovereignty disputes around China has become increasingly prominent, and the international political and economic situation still faces significant uncertainty. In order to break the foreign technology blockade, support national industrial upgrading, enhance national defense technology innovation capabilities, and accelerate the pace of military modernization, the country has introduced a series of incentive policies to promote the development of electronic information technology and defense technology industry. The continuous improvement of industrial policies and regulatory environment will create a good market environment for the development of the military power supply industry.

(2) The need for upgrading weapons and equipment

Our country adheres to an independent foreign policy and a defensive national defense policy. However, in the face of territorial sovereignty disputes and separatist activities around our country, in order to defend national sovereignty, security, and development interests, our country's demand for national defense and military construction is constantly increasing. Our country has pointed out that the strategic goal of national defense and military construction is to "ensure that mechanization is basically achieved and significant progress is made in information technology construction by 2020... and strive to achieve modernization of national defense and the military by 2035, and to fully build the People's Army into a world-class military by the middle of this century.". Compared to developed countries, China has a relatively small quantity of various types of military weapons and equipment, and a relatively backward level of informatization and electrification, which has a large development space and urgent development needs. The "National Defense of China in the New Era" points out that "we will build a modern weapon and equipment system. We will improve and optimize the structure of the weapon and equipment system, coordinate the development of weapons and equipment in all branches of the military, coordinate the development of main combat equipment, information systems, and support equipment, comprehensively improve the level of standardization, serialization, and universality. We will increase efforts to eliminate old equipment and gradually form a weapon and equipment system with high-tech equipment as the backbone.". As a core supporting component of electronic power equipment, power supply has ushered in an era of rapid development opportunities with the upgrading and replacement of various weapons and equipment.

(3) The requirements for independent and controllable defense and military industry

In the current complex international environment, the autonomy and controllability of core technologies are not only related to the lifeline of the national defense industry, but also the key for the country to achieve overall industrial transformation and upgrading, and grasp the initiative of innovative development. The Action Plan for the Development of Basic Electronic Components Industry (2021-2023) requires a focus on enhancing the innovation capacity of the electronic components industry, proposing to implement a high-end upgrade action for key products, targeting key products such as circuit components, breaking through patent and technical barriers that restrict industry development, filling the gaps in electronic component development, and ensuring the security and stability of the industry chain and supply chain. The "14th Five Year Plan" and the 2035 Vision Goal Outline require adhering to independent, controllable, safe, and efficient promotion of industrial development, proposing to "accelerate the filling of bottlenecks and shortcomings in basic components and components, basic software, basic materials, basic processes, and industrial technology foundation", "accelerate the modernization of weapons and equipment, and concentrate on independent and original innovation in national defense technology".

In the context of independent and controllable defense and military industry, China's military power supply industry is gradually realizing the import substitution of domestic brands for foreign mainstream brands, and further advancing towards the direction of nationwide production substitution of components.

5. Challenge

(1) The challenge of raw material supply

In recent years, with China continuously promoting industrial transformation and technological upgrading from a policy perspective, the performance level of domestic electronic components has made significant progress. However, high-end electronic components used in military power supply and other fields are still mainly satisfied through imports. With the constantly changing international situation, ongoing trade frictions and technological blockades between China and the United States, there is a certain degree of uncertainty in the upstream component supply of the military power supply industry. In addition, the outbreak of COVID-19 since 2020 has also had an impact on the supply capacity and response speed of raw material suppliers.

The above factors that may affect the instability of raw material supply will pose challenges to the raw material procurement activities and price stability of manufacturers in the industry.

(2) Challenges of intensified industry competition

With the acceleration of national defense and military reform, as well as the deepening implementation of the national military industry's "independent and controllable" policy, more enterprises will join the military power supply market in the future. At the same time, the strong support of the country for the development of the electronic information industry will also promote the progress of underlying technologies. In the new round of technological revolution and industrial transformation, cutting-edge electronic information technologies such as artificial intelligence, quantum information, big data, and the Internet of Things will gradually be applied in the field of national defense and military industry. Manufacturers with technological strength in specific fields will receive the dividends of industry development, and market competition in the industry will become more intense in the future.

For more industry information, please refer to PwC Consulting's 2022-2028 Military Power Supply Industry Segmented Market Research and Investment Outlook Forecast Report.