Tesla's downgrade of its use of silicon carbide sent shares of some chipmakers plummeting

Shares of some chipmakers fell on Thursday after Tesla announced plans to drastically reduce the use of silicon carbide transistors.

Shares of some chipmakers fell on Thursday after Tesla announced plans to drastically reduce the use of silicon carbide transistors in its next-generation powertrains.

Colin Campbell, Lead of Powertrain Engineering, showed how the company plans to reduce the cost of the powertrains in their cars while maintaining high performance and energy efficiency.

Tesla's downgrade of its use of silicon carbide sent shares

"In the next powertrain, the silicon carbide transistors that I mentioned, which are a key component but very expensive, we came up with a way to use 75 percent less without compromising the performance or efficiency of the car," Campbell explained.

Shares of some chip manufacturers fell after Tesla's announcement

ON Semiconductor and ST Microelectronics fell about 2% each, while Wolfspeed shares fell about 7%, as investors worried that Tesla's actions would be a harbinger of the auto industry.

Campbell also mentioned that new Tesla powertrains will use motors free of rare earth metals. MP Materials, a raw material supplier known for supplying neodymium to automakers, fell about 11% in response.

Campbell did not say when the company's next-generation powertrain would be ready for mass production and use in its cars, nor did he say how much the company is currently spending on these transistors. Dubbed by some analysts as Model 2.

Silicon carbide material

  • Silicon carbide transistor chips are widely used in electric vehicles, and according to the Institute of Electrical and Electronic Engineers, they can withstand more heat, have a longer lifespan, and are more energy efficient than transistor-based silicon semiconductors.

  • Analysts at Bank of America called Tesla's claims "remarkable but premature," and the analysts said, "If this technological advance is true, it could be a significant risk to the materials industry."

  • They also noted that "cheaper silicon carbide chips could increase global adoption of electric vehicles, so what vendors lose out on content can be partially offset by larger EV sizes."

  • Analysts at New Street Research broadly agreed, writing in a note Thursday that Tesla's announcement is actually a good thing for chipmakers because they expect demand to remain high throughout the electric vehicle industry and beyond.

  • “The new driveline inverter will use a hybrid architecture,” they wrote of Tesla’s announcement, “which blends silicon and silicon carbide transistors, with both types of transistors working together to handle peak loads in the Tesla, primarily during the car’s acceleration. This hybrid architecture is intended for the platform New only, i.e. low-cost, compact, lower-performance vehicle, and will not be approved for current S, X, 3, Y, or Cyber models.

  • According to New Street, Tesla's lowest-priced next-generation car "won't scale in sizes until 2025 or 2026."

  • Wells Fargo analysts maintain an overweight rating on both Wolfspeed and OnSemi stock, with a price target of $110 for Wolfspeed and a price target of $95.

Strong demand for silicon carbide chips

Wells Fargo analysts said in a note Thursday that the supply chain for silicon carbide wafers will remain tight in the near term due to strong demand from automakers across the board, citing the Yole Group.

Each growing electric car maker will seek to expand while controlling costs, but in the short term they will be more interested in securing supplies of silicon carbide wafers for their new models, many of which will be launched this year and next, they said.


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