The silicon carbide (SiC) market is undergoing a tumultuous transition, particularly observed in the first half of 2024. This once-promising segment of the semiconductor industry, attributed to its crucial role in the electric vehicle (EV) revolution, faces unprecedented challenges, with major players like Wolfspeed experiencing sharp declines in revenue and soaring losses.

Wolfspeed, a leading American manufacturer of SiC wafers, recently disclosed a financial report indicating a staggering revenue drop of 12% year-over-year, tallying at $807.2 millionMore alarming, however, is the company's net loss, which ballooned to a whopping $573.6 million, marking a 74% increase from the previous fiscal yearThis translates to a loss of $4.56 per share, a figure considerably worse than the $2.65 reported in 2023. Such figures have prompted serious concern regarding the company's operational viability in a declining market.

Looking ahead, Wolfspeed forecasted revenues for the first quarter of fiscal year 2025 to fall between $185 million and $215 million

Coupled with anticipated Non-GAAP losses per share ranging from $0.90 to $1.09, the company is taking drastic measures, including the closure of its silicon carbide wafer production facility in Durham, North Carolina, as a cost-cutting moveThe closure, however, casts uncertainty over the future employment prospects of the workers affected, an aspect the company has yet to clarify.

Wolfspeed has roots tracing back to the early 19th century, with the first discovery of silicon carbide materials made by J.JBerzelius in 1824. The commercial manufacturing of SiC began in 1987 with Greentech (now known as Wolfspeed), signifying the commencement of a new era for this material in the semiconductor industryThe emergence of electric vehicles saw a surge of interest in SiC from stakeholders across the automotive domain, particularly since Tesla announced its strategic adoption of SiC modules in 2020, paving the way for this material to gain prominence.

However, where there has once been optimism, now lies apprehension

• Indian Rupee Expected to Devalue by 3% in 2024
• Trade with India Has Quadrupled Since 2005
• The Truth About the Silicon Carbide Market
• Fed Rate Cut May Be Delayed
• Collapse of Europe's Semiconductor Industry

Since the beginning of 2024, the prices of SiC products have plummeted drasticallyIndustry experts cite intense pricing wars, especially within the 1200V SiC ecosystem, driven by excess inventory and a sudden drop in demand.

As leading industry players report significant losses and market prices continue their downward trajectory, the question looms: what has caused this turmoil within the silicon carbide market?

The stark disparities faced by companies in the SiC domain bring forth a narrative of dual fortunesInterestingly, while Wolfspeed grapples with daunting challenges, many emerging competitors in the Chinese SiC space are thriving.

Insiders highlight that Wolfspeed suffers from underutilization of its eight-inch SiC wafer production capabilities, with current operating rates reportedly bouncing around a mere 20%. Expectations are set to increase this marginally to around 25% by the end of 2024, which indicates a prolonged period of inefficiency

Detrimentally, a significant competitor, namely the growing SiC enterprises in China, has begun to seize market shareChina’s silicon carbide production industry is becoming increasingly advanced, lowering prices for related products rapidly and putting pressure on Wolfspeed’s competitive edge.

Illustrating this rise in competitiveness, consider the performance of domestic Chinese firmsTianyue Advanced reported revenues achieving 912 million yuan in the first half of 2024, demonstrating a remarkable year-on-year growth of 108.27%. Other companies like Yangjie Technology and Naxinwei also reported increasing revenues, with some achieving profitability, demonstrating a clear emerging trend of growth in the domestic sector.

The downward spiral of pricing in the SiC market, while alarming, has not isolated itself to WolfspeedThe automotive industry at large is encountering similar challenges with various segments compelled into pricing wars, amid competition and a searching for cost efficiencies

What's intriguing is that this price reduction may indicate heightened demand rather than a waning interest in the materialIn this view, the pricing pressures reflect broader trends within the industry as all players adjust to shifting market conditions.

In comparison to other sectors, the semiconductor industry is especially challenging, notoriously characterized by high barriers to entry, lengthy investment cycles, and significant up-front capital requirementsThe phenomenon of ‘loss-leading’ in pursuit of market share is unlikely to perpetuate long-term, signaling that this market must find a stable equilibrium.

Examining the landscape of China’s SiC market reveals a dynamic battleground that is poised for significant growthWith the rapid ascent of domestic EV brands and increased penetration of SiC components in consumer vehicles, the demand is set to soar

Notable brands like Tesla, BYD, and Li Auto are integrating SiC technologies into their product lines, further establishing China as a key player in the global semiconductor landscape.

Industry forecasts suggest that from 2023 to 2026, 6-inch conductive silicon carbide substrate production will burgeon from 2.1 million pieces to an estimated 5.69 million pieces, demonstrating significant compound annual growth potentialCurrent estimations indicate that by 2026, China’s production of 6-inch SiC substrates could account for up to 50% of the global market, highlighting an extraordinary shift in production dynamics.

International players also recognize the need to penetrate the lucrative Chinese marketCompanies like Rohm Semiconductor have started collaborating with major Chinese automotive suppliers to secure long-term supply agreements for SiC power devices, underscoring the competitive landscape's international nature.

The positive view among industry insiders regarding China’s SiC market is bolstered by the strong foundational growth in the EV sector

Although technological advancements in SiC manufacturing still require catching up to Western counterparts, the current trajectory suggests a diminishing gap, signaling an era of rapid maturation for domestic firms.

From a material science perspective, it’s crucial to recognize that the pricing mechanism of SiC is influenced by its intrinsic propertiesThe anticipated exponential growth is unlikely to bring prices down to levels comparable to IGBT, as the unique characteristics of SiC justify its somewhat elevated price point.

Despite facing significant price volatility in the current SiC landscape, stakeholders maintain optimism about the long-term profitability of the industryContinuous technological advancements are expected to facilitate a gradual distribution of costs, allowing companies to solidify their business modelsLeading enterprises in this sector are increasingly investing in strategic research and development to create robust competitive advantages to navigate this tumultuous landscape.

Particularly, laying down the groundwork for eight-inch SiC wafer fabrication has become a focal point for these companies

Industry observers have noted a decisive shift from six-inch to eight-inch technology, a transition anticipated to fully materialize within the next five yearsLeading organizations are already ahead of the curve, actively providing samples and demonstrating compliance with market requirements for this new wafer technology.

This move towards eight-inch SiC technology underscores the necessity of fostering robust relationships with primary material suppliers while also encourages real-time communication with clients to ensure adaptability in product developmentAs the sector evolves, strategic preparation for this technological transition will be essential for cementing dominance in the competitive SiC marketplace.

Behind the silicon carbide sector lies a macro view of a rapidly transforming global automotive landscapeThe current dynamics of the automotive supply chain reveal dramatic shifts as semiconductor components, primarily SiC, gain profound significance within EV architectures

An increase in original equipment manufacturers (OEMs) opting to bypass first-tier suppliers in favor of direct procurement signifies an impending overhaul of existing supply chain networks.

The driving force of SiC growth fundamentally revolves around the booming electric vehicle market, with China firmly positioned at its coreAs domestic brands proliferate, foreign enterprises are increasingly recognizing the pressing demand for automotive-grade chips in the Chinese marketThus, the competition within the SiC remit is inexorably tied to the race for dominance within the global automotive sector, particularly in the emerging EV arena.

Externally, the rise of Chinese EV brands has triggered palpable unease within international marketsGovernments worldwide are enacting policy shifts aimed at fortifying domestic industriesFor instance, Japan has pledged approximately 350 billion yen ($2.4 billion) in subsidies to bolster local automotive components, while Canada has recently introduced hefty tariffs on imported EVs from China, reflecting a protective stance towards local markets.

This pivot in the silicon carbide landscape illustrates a nuanced scenario where the development trajectory depends not only on technological advancements in upstream companies but also on manufacturers’ agility in capturing market share