- Tesla’s plan to cut its use of silicon carbide sent some semiconductor stocks falling on Thursday.
- Wolfspeed, ON Semiconductor, and STMicroelectronics use the rare earth metal to produce semiconductors.
- Tesla said its next generation powertrain will use a magnet motor that uses 75% less silicon carbide.
Tesla’s recent investor day revealed plans for the company to significantly reduce its use of rare earth metals in its next generation vehicles, and that’s dragging down a lot of stocks related to the sector.
Tesla said its next-gen powertrain will use a permanent magnet motor that will reduce its use of silicon carbide by 75%, enabling it to scale its vehicle production more efficiently.
“Silicon carbide is an amazing semiconductor, but it’s also expensive and it’s really hard to scale. So using less of it is a big win for us,” Tesla’s VP for powertrain engineering Colin Campbell said.
That development was digested as bad news by investors of Wolfspeed, ON Semiconductor, and STMicroelectronics, all of which are semiconductor companies that produce chips with silicon carbide.
Shares of Wolfspeed fell as much as 14% on Thursday, while STMicroelectronics and On Semiconductor fell 7% and 8%, respectively.
But some investors are buying the dips in these semiconductor stocks as Tesla gave no timeline as to when its next-generation advancements will be implemented into its production process, and the company has a history of announcing future products but severely missing their production timeline (see: Cybertruck).
In defense of Wolfspeed, Roth MKM analyst Craig Irwin said in a note: “In our opinion, Tesla has a history of overstatement, so in all likelihood this claimed improvement in heat extraction accelerates industry adoption to WOLF’s benefit.”
Meanwhile, Bank of America analyst Vivek Arya defended ON Semiconductor and argued that if Tesla’s silicon carbide advancement does come to fruition, it could ultimately lead to a drop in silicon carbide prices and help accelerate the adoption of electric vehicles. Such a development could help ON Semiconductor offset a decline in volume via more electric vehicles.
Bank of America maintained its “Buy” rating on On Semiconductor with a $90 price target, while Roth MKM maintained its “Buy” rating and $95 price target for Wolfspeed.