Tesla’s plan to slash silicon carbide use sends some chipmakers’ shares down

Following Tesla’s announcement that it intends to significantly reduce the use of silicon carbide transistors in its next-generation vehicle powertrains, shares of some chipmakers fell on Thursday.

Powertrain engineering leader Colin Campbell took the stage on Wednesday at Tesla’s 2023 Investor Day presentation, which primarily focused on efficiency and cost control. He explained how the company plans to reduce the cost of their cars’ powertrains while maintaining high performance and energy efficiency.

Campbell stated, “We figured out a way to use 75% less without compromising the performance or efficiency of the car in our next powertrain, the silicon carbide transistors that I mentioned, which are key components but expensive.”

Investors were concerned that Tesla’s actions would be a sign for the auto industry, and as a result, the shares of ON Semiconductor, ST Microelectronics, and Wolfspeed both experienced losses of approximately 2 percent.

Campbell also stated that rare earth metal-free motors will be used in Tesla’s new powertrains. MP Materials, a raw material supplier known for supplying automakers with neodymium, experienced an 11% drop in response.

Campbell did not specify how much the company currently spends on these transistors or when the company’s next-generation powertrain would be ready for high-volume production and use in the company’s vehicles. The “next-gen” Tesla, which some analysts refer to as the Model 2, was not discussed by executives at the event.

In electric vehicles, silicon carbide transistor chips are frequently utilized. According to the Institute of Electrical and Electronic Engineers, they generally resist heat better, last longer, and use less energy than semiconductors made with silicon power transistors.

Analysts at Bank of America deemed Tesla’s claims “notable but premature.”

“If true, this technological advancement could be a major risk for the SiC materials industry (WOLF, COHR, Rohm) and devices (ON and European peers STMicro, Infineon – covered by Didier Scemama),” however, the analysts acknowledged.

“Cheaper [silicon carbide chips] could drive up EV adoption worldwide, so what vendors lose on content could be partially offset by greater EV volumes,” they added.

All of the analysts at New Street Research agreed, writing in a note on Thursday that the Tesla announcement is good news for chipmakers because they anticipate that demand will remain high outside of the EV industry.

Regarding Tesla’s announcement, they wrote: A hybrid architecture that combines silicon and silicon carbide transistors will be used in the inverter of the new drivetrain. These two types of transistors will work together to handle peak loads in a Tesla vehicle, primarily during acceleration. This hybrid architecture will only be used for the new platform, which is a small, low-cost car with lower performance. It will not be used for the Cybertruck or any of the other models (S, X, 3, Y).

New Street does not anticipate that a lower-priced Tesla vehicle of the next generation will “ramp in volumes before 2025 or 2026.”

With a price target of $110 for Wolfspeed and a price target of $95, Wells Fargo analysts are maintaining an overweight rating on OnSemi shares.

Wells Fargo analysts said in a note on Thursday that the silicon carbide chip supply chain will remain tight shortly because of the strong demand from all automakers. They stated that shortly, they will be more concerned about securing a supply of silicon carbide chips for their new models, many of which are scheduled to launch this year and next. However, every expanding manufacturer of electric vehicles will strive to scale up while maintaining cost control.

As investor day lacks specifics, Tesla stock falls.

On Wednesday, electric car manufacturer Tesla held an investor day presentation in Austin, Texas. Elon Musk, Tesla’s CEO, took the stage to talk about his “Master Plan 3” and how the company plans to grow in the face of more competition.

The presentation was short on details about any new Tesla products or services, but it was long on vision and included a review of previous accomplishments.

Musk said the following near the beginning of the presentation: There is a clear path to Earth’s energy sustainability. There is no need to destroy natural habitats. We don’t have to be strict, stop using electricity, or be outside in the cold. “You could support a civilization much larger than Earth, much more than the 8 billion humans could be supported sustainably on Earth,” he continued.

Drew Baglino, Tesla’s senior vice president of powertrain and energy engineering, was the first to join Musk on stage. As they increased the production of batteries for Tesla’s electric vehicles and utility-scale energy storage systems, they talked about a future where the company would be involved in “re-powering the grid with renewable fuels.”

Executives reiterated that Tesla aims to produce 20 million electric vehicles annually by 2030. In 2022, the company said that it delivered around 1.31 million vehicles for the entire year.

After the presentation, which lasted three hours, executives received a question about how Tesla could increase its market share in China during a question-and-answer session.

Tom Zhu, who oversees global production and has previously managed Tesla’s China and APAC businesses, received the question from Elon Musk. Zhu stated, “You don’t have to worry about demand as long as you offer a product with value at an affordable price.” He continued, “We try everything to cut costs and pass that value on to our customers.”

“Demand is a function of affordability not desire,” Musk continued. “Even small price changes have a big effect on demand,” he stated.

Zhu also said that Tesla had produced 4 million cars as of Wednesday.

The first million was built in 12 years, and the second million took 18 months to build. 11 months, third million. Then, less than seven months later, we’ll build the 4 millionths,” Zhu said, praising the growing operational effectiveness of the business.

He stated that Tesla intends to construct new factories for cars and battery cells as well as increase the annual production of cars at its existing facilities.

According to Tesla charging leader Rebecca Tinucci, the company will provide 9 terawatt hours across all charging methods in 2022, including 40,000 Superchargers for home charging. In comparison, the United States consumes approximately 4,000 terawatt hours of electricity annually.) Tinucci also mentioned that the company recently opened ten Superchargers in the United States to non-Tesla vehicles and that half of its Superchargers in the European Union are open to other vehicles.

Franz von Holzhausen, the head of design at Tesla, and Lars Moravy, vice president of vehicle engineering at the company, took the stage to demonstrate several planned manufacturing changes that are intended to increase the production efficiency of Tesla vehicles. However, von Holzhausen stated that Tesla would not reveal its “next-gen” automobile until later.

Colin Campbell, the company’s vice president for powertrain, stated that the next powertrain factory will have the same capacity as the one in Austin, despite being 50 percent smaller. Additionally, he stated that the company is developing a motor that will not contain any rare earth metals and a new type of drive unit that is compatible with any type of battery cell.

At a news conference on Tuesday, Mexico’s president, Andres Manuel Lopez Obrador, disclosed that Tesla had agreed to construct a substantial factory in Monterrey, Mexico, ahead of the 2023 investor day. He said that the company agreed to use recycled water and take other actions to deal with the region’s lack of water.

On Wednesday, Musk confirmed the plans for the factory and stated that it would complement rather than replace any other Tesla manufacturing facilities.

After falling during 2022, Tesla shares have recovered and are up more than 60% for the year thus far. However, the stock fell 5% after-hours and 1.43 percent on Wednesday, the day before the event.

Before investor day, analysts at Mizuho Securities maintained a buy rating on Tesla shares because they believe the company is leading a growing market for fully electric vehicles. “Near-term, we see continued strength in TSLA’s market share, but see cheaper competitor EVs coming to market as potentially diluting to TSLA’s share of the US EV market,” they wrote in a note earlier this week.

They wrote that the Model 3 sedan, which starts at around $43,000, is currently the most affordable Tesla model. Mizuho noted that seven models from other automakers currently have prices below that.

Although published in 2016, Musk’s ambitious “Master Plan, Part Deux” has not been completed. There were four main goals:

“Enable your car to make money for you when you aren’t using it”; “Create stunning solar roofs with seamlessly integrated battery storage”; “Expand the electric vehicle product line to address all major segments”; “Develop a self-driving capability that is 10X safer than manual via massive fleet learning”; and “Create stunning solar roofs with seamlessly integrated battery storage.”

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