Shares Of Some Chipmakers Fall As Tesla Plans To Reduce Silicon Carbide Use

Several chipmakers' shares fell on Thursday as electric vehicle maker Tesla said it would reduce the use of silicon carbide transistors in the powertrains of its next-generation vehicles by a great deal.

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During Tesla's 2023 Investor Day presentation on Wednesday, which was largely focused on efficiency and controlling costs, Colin Campbell, the company's powertrain engineering leader, took the stage to explain how the company plans to reduce the cost of the cars' motors, while retaining high performance and energy efficiency at the same time.

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“In order to reduce the cost and to improve the efficiency of our next powertrain, we have figured out a way to use 75% less silicon carbide transistors, a key component but one that is very expensive, without compromising the performance or efficiency of the vehicle,” according to Mr. Campbell.

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There was a drop in the shares of ON Semiconductor and ST Microelectronics each of which was more than 4%, as well as drops in the shares of Wolfspeed and MP Materials, as investors were worried that Tesla's moves would be a harbinger of the automotive industry as a whole.

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It would appear that Campbell did not provide any specific information regarding when the company will be ready for high-volume production of its next-generation powertrain for use in its vehicles, nor did he specify how much it currently spends on the transistors in its vehicles. A Tesla executive said at the event that he had no firm information on what could be the "next generation" Tesla, which some analysts refer to as the Model 2.

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In electric vehicles, silicon carbide transistor chips are widely used as part of power electronics. It is generally accepted by the Institute of Electrical and Electronic Engineers that semiconductors made with silicon power transistors are less energy-efficient, have a longer life, and are more heat-resistant than semiconductors made with silicon power transistors.

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Analysts at Bank of America deemed Tesla's claims “noteworthy but premature”.

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As the analysts noted, however, “if this technological advancement is true, then it could be a major threat to the SiC materials industry (WOLF, COHR, Rohm) and devices industry (ON and other European peers STMicro, Infineon - covered by Didier Scemama).”

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It has also been pointed out that “cheaper [silicon carbide chips] could lead to a global rise in the adoption of EVs so that what vendors lose on content could be partly offset by a rise in EV sales”.

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There was some agreement among analysts at New Street Research, and they wrote in a note on Thursday that the announcement by Tesla is actually good news for chipmakers, as the demand for chips will remain high through the EV industry and beyond.

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They wrote of Tesla’s announcement: “A hybrid architecture will be utilized in the inverter of the new drivetrain, which will mix silicon and silicon carbide transistors, enabling both types of transistors to work together in order to handle peak loads in Tesla vehicles, primarily during accelerations. There is no plan to use this hybrid platform for existing models (S, X, 3, Y), or for the Cybertruck as it will only be used for the new platform, i.e. a low-cost, small, lower-performance car.”

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Tesla's next-generation vehicles will not ramp up in volume before 2025 or 2026, according to New Street.

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Analysts at Wells Fargo are maintaining an overweight rating on the shares of both Wolfspeed and OnSemi with a price target for Wolfspeed of $110 and a price target for OnSemi of $95.

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Wells Fargo analysts said in a note on Thursday that in the near term, silicon carbide chip production will remain tight due to strong demand from automakers across the board, citing Yole Group as a source of information. EV companies are all striving to scale up their production while controlling costs, but in the near term, they will be more concerned about securing a supply of silicon carbide chips for their new models that are likely to be introduced this year and next, according to the experts.

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