onsemi and Wolfspeed – Navigating a Slowdown in Silicon Carbide (SiC) Demand For EVs

To all readers. Substack is now the exclusive domain for my articles. Readers will no longer find them on Seeking Alpha. Any subscriptions to my articles will only come through Substack, and if you were a Paid Subscriber for my Semiconductor Deep Dive Newsletter, consider Substack.

As a heads-up, all articles over the past few weeks have been free to readers as an Introductory Program. Shortly, I will initiate a Paid Subscriber policy soon, so sign up now as a Paid Subscriber and continue reading entire non-paywalled articles.

As I noted, data for this article came from my report entitled Power Semiconductors: Markets, Materials and Technologies. You can find the TOC of this report and all my reports on my website at www.theinformationnet.com.

• EV Demand Fluctuations: Growth in electric vehicle sales has slowed recently, impacting SiC chip demand and causing fluctuations in revenue for key players like onsemi and Wolfspeed.

• Revenue Trends: Onsemi has seen a decline in revenue over the past three quarters, contrasting with Wolfspeed’s modest revenue growth.

• Market Share Distribution: STMicroelectronics leads the SiC market with about 35% share, while onsemi holds approximately 25%, and Infineon commands around 15%.

• Financial Comparisons: Wolfspeed’s negative non-GAAP EPS contrasts with onsemi’s positive, though declining, earnings, highlighting differing financial performances amidst the SiC market slowdown.

onsemi (ON) is experiencing notable growth due to its strategic focus on pivotal market segments and technological innovations. onsemi has experienced a slowdown in revenue growth recently. This trend reflects broader market dynamics and shifts within the semiconductor industry. However, the company’s strategic focus on high-growth areas such as automotive and industrial applications, combined with its advancements in SiC technology, provides a solid foundation for future performance.

In this article, I take a deep dive analysis of the silicon carbide market with a focus on onsemi (ON) and Wolfspeed (WOLF).

Growth Drivers

Automotive Sector Expansion: onsemi's growth is significantly driven by its emphasis on the automotive sector. The company is well-positioned to benefit from the rising demand for advanced driver assistance systems (ADAS) and electric vehicles (EVs). onsemi’s semiconductor solutions, including power management and sensor technologies, are essential for these applications. The acquisition of GT Advanced Technologies in 2021 has enhanced onsemi’s capabilities in high-performance silicon carbide (SiC) technology, which is critical for electric vehicle powertrains. This strategic move positions onsemi as a prominent player in the expanding EV market, projected to experience substantial growth in the coming years.

SiC Market Size and Growth

The global market for silicon carbide (SiC) power devices is experiencing remarkable growth. In 2023, the market was valued at approximately $3.5 billion and is anticipated to reach $7.8 billion by 2028, reflecting a compound annual growth rate (CAGR) of around 17.5%, according to The Information Network’s report entitled Power Semiconductors: Markets, Materials and Technologies. This impressive growth trajectory is primarily driven by the rising adoption of SiC technology in electric vehicles (EVs), renewable energy systems, and industrial applications.

Electric Vehicles (EVs): The EV sector is a significant driver of demand for SiC power devices. SiC technology enhances the efficiency and performance of EV powertrains by reducing energy losses and improving thermal management. With global EV sales projected to exceed 10 million units annually by 2028, the demand for SiC power devices is expected to surge.

Renewable Energy: SiC power devices play a crucial role in renewable energy systems, including solar inverters and wind turbines. The ability of SiC to handle high voltages and temperatures makes it ideal for efficient power conversion and energy management in these applications.

Industrial Applications: In industrial settings, SiC devices are used in high-power and high-frequency applications such as motor drives and power supplies. The focus on energy efficiency and performance in industrial automation further drives the demand for SiC technology.

Market Share and Competitive Landscape

onsemi is a notable player in the semiconductor sector, particularly in the SiC power devices market. Here’s how it compares with key competitors, as shown in Chart 1.

• onsemi: onsemi holds an estimated 25% share of the SiC power devices market. The company’s acquisition of GT Advanced Technologies has significantly enhanced its capabilities in high-performance SiC technology, positioning it as a major player in the EV and industrial markets.

• Wolfspeed: Wolfspeed is a significant competitor in the SiC market, holding around 11% of the market share. Wolfspeed’s focus on SiC technology and its strong emphasis on EV and industrial applications make it a key player in the sector.

• STMicroelectronics: STMicroelectronics (STM) commands about 35% of the SiC market. Its SiC products are widely used in automotive and industrial applications, reinforcing its strong position in the industry.

• Infineon Technologies: Infineon (IFNNY) leads the SiC market with an approximate 15% share. The company's extensive portfolio of SiC devices and focus on automotive and power applications contribute to its dominant market position.

Chart 1

EV Demand - Headwinds in U.S. and Europe for SiC Chips

Demand for electric vehicles has continued to grow, but have been flat in the past year, as shown in Chart 2. The pace of growth has slowed from 2021 and 2022, when the industry was seeing 70% and 80% year-over-year growth. The auto industry ended 2023 with EV inventory of 113 days, compared with 69 days for internal-combustion-powered vehicles, including hybrids.

Chart 2

QoQ Slowdown Among SiC Chip Companies

I first brought this slowdown and how it was impacting companies in the EV supply chain, specifically Silicon Carbide ("SiC") chips, in a January 10, 2024 article entitled "Tracking A 2024 Slowdown In Silicon Carbide For EVs With Eyes On ON Semiconductor And Wolfspeed."

Chart 3 shows quarterly growth in SiC chip shipments for six top manufacturers between Q4 2021 and Q2 2024. The slowdown in EV sales is impacting the SiC supply chain. QoQ for Q2, WOLF increased 2.4 % while ON decreased by 1.8%.

Chart 3

For 1H 2024, Wolfspeed increased 12.2% compared to -13.8% for ON. X-Fab (XFABF) gained the most at 24.3%.

Investor Takeaway

Headwinds From EV Slowdown

Since January 2023, EV sales have plateaued. In fact, these vehicles made up 9.3% of light-duty vehicles sales in 2023 and 9.3% again for the first seven months of 2024, according to the Institute for Energy Research.

Of concern is demand for BEVs outside China. Like U.S. Semiconductor Sanctions against China that are failing, as I discussed in my August 31, 2024 Substack article entitled “ASML: Trying to Endure U.S. Sanctions That are Ineffective and Backfiring,” EV mandates by the Biden administration are also failing, as shown in Chart 4.

Chart 4

Financial Comparison

Chart 5 shows Revenues in the AUTOMOTIVE segment for ON and WOLF between fiscal Q1 2023 and Q4 2024 (C Q2 2024). It shows a strong growth with ON, which has been dropping for the past three quarters. Since the peak in revenues for ON, its revenues dropped 19%, versus an increase of 3% for WOLF.

Chart 5

In Chart 3, I show non-GAAP EPS on a quarterly basis showing that for the entire period, Non-GAAP EPS for WOLF has been negative and getting worse with recent fiscal Q4 2024 at -$0.89. Non-GAAP EPS for ON has also been getting worse, but has stayed positive.

Chart 6

Chart 4 shows the quarterly Debt to Equity of WOLF of 2.142 over the past 3-year period and the rapid ramp since mid CY2023. As a comparison, ON has a Debt to Equity ratio of just 0.114.

Closing its 150mm SiC production facility in Durham should help reduce Wolfspeeds debt.

I rate both companies a Hold.