Silicon Carbide

Silicon carbide (SiC) is reshaping the automotive and power electronics sectors by enabling greater energy efficiency, smaller batteries, and longer EV ranges. This analysis unpacks how players like ON Semiconductor, Infineon, and a rising wave of Chinese competitors are navigating wafer cost declines, vertical integration, scaling strategies, and the complementary emergence of gallium nitride (GaN). The future of power semiconductors will depend on cost control, technological leadership, and supply chain agility.

1. Market Driver: SiC Displaces IGBT in Automotive Power Electronics

Electric vehicle OEMs are accelerating adoption of silicon carbide (SiC) over traditional insulated-gate bipolar transistors (IGBTs) due to:

• Higher switching efficiency → Less heat generation and lower cooling requirements.

• Smaller inverter and battery size → Estimated 8–10% battery size reduction.

• Improved driving range per kWh → Direct TCO and performance benefit.

This shift is particularly pronounced in mid- to high-power EV architectures (e.g., Lucid, Tesla Model S, and Mercedes EQE), where energy density and thermal efficiency are paramount.

Investor Insight: SiC’s cost-premium (~2–5x vs. silicon) is increasingly offset by system-level cost savings—battery pack reduction alone can justify SiC adoption in performance vehicles.

2. ON Semiconductor’s Advantage: Full-Stack Vertical Integration

ON Semiconductor is building long-term competitive advantage through:

• Internal wafer production (from boule growth to finished device).

• Supply chain ownership, reducing exposure to foundry bottlenecks.

• Predictable pricing across volatile markets.

In contrast, competitors such as Infineon and STMicroelectronics still depend on third-party wafer suppliers, exposing them to:

• Long procurement cycles.

• Price fluctuations, especially for 6-inch and transitioning 8-inch wafers.

• Delays in scaling production due to supplier lead times.

Investor Insight: Vertical integration de-risks margin compression and positions ON Semi to weather raw material price swings and geopolitical sourcing constraints.

3. Chinese Pressure: Price War in SiC Wafer Supply

Over the past 12–18 months, Chinese wafer suppliers have:

• Driven down prices by 25–30%.

• Flooded the market with 6-inch SiC substrates at aggressive pricing.

• Begun developing 8-inch capability to match Western roadmaps.

This has placed margin pressure on legacy suppliers like Wolfspeed and Coherent, who historically commanded premium pricing based on purity, defect density, and supply reliability.

Investor Insight: The SiC materials market may mirror solar PV: cost-leader commoditization led by China, followed by Western focus on performance differentiation or niche segments.

4. Long-Term Agreements (LTAs): Hedge or Exposure?

To secure wafer supply, major device manufacturers are signing multi-year LTAs, often with:

• Volume guarantees but flexible pricing clauses.

• Annual price renegotiations indexed to market benchmarks.

• Variable penalties for underconsumption.

While this provides some security, it introduces financial exposure in fast-declining pricing environments. If spot prices fall 20–30% and a firm is locked into $800/wafer LTAs, margin erosion is unavoidable.

Investor Insight: Balance sheet analysis must assess off-balance-sheet exposure to LTA repricing risk—especially among SiC device specialists with limited hedging leverage.

5. Device Innovation: Continuous Leapfrogging with No Durable Moat

ON Semi, Infineon, and ST Micro all engage in:

• Product release cycles of 12–18 months.

• Iterative improvements in breakdown voltage, switching losses, and thermal resistance.

• Customer-specific customization, particularly for inverter or onboard charger (OBC) modules.

There is no single leader across all performance metrics. Each firm holds episodic leadership in:

• ON Semi: Wafer quality, energy efficiency.

• Infineon: Thermal packaging, cost.

• ST Micro: Broad design wins across European OEMs.

Investor Insight: Market share is volatile. Execution, reliability, and design win velocity matter more than transient process advantages.

6. Scaling Strategies: Brownfield vs. Greenfield Expansion

Two divergent factory strategies are playing out:

• ON Semi is executing brownfield upgrades → lower CapEx, faster time-to-production.

• Infineon and Wolfspeed are betting on greenfield mega-fabs → higher CapEx but long-term automation gains.

Automation (300mm wafer tools, closed-loop metrology) will become essential as volumes grow and defect tolerance tightens.

Investor Insight: Brownfield enables faster ROI in a fast-moving market; greenfield enables scale economies—both require execution excellence.

7. Technology Stack: GaN and SiC as Complementary, Not Competing

While SiC dominates high-voltage segments (>600V), GaN (gallium nitride) is rapidly gaining traction in:

• Consumer fast chargers (65–120W).

• Data center power supplies.

• Lower voltage automotive applications (e.g., DC–DC converters).

Investor Insight: These technologies are not substitutes. SiC will own the EV drivetrain; GaN will proliferate in edge computing and consumer electronics.

8. Takeaways for Operators and Investors

• SiC is crossing the cost/performance chasm. Device-level cost is now justifiable by system-level efficiency.

• Chinese players are reshaping supply dynamics. Wafer pricing power is shifting east; device value capture remains west-centric—for now.

• Execution in scaling and LTAs will define winners. Investors should look for CapEx timing, volume commitments, and flexibility clauses.

• SiC + GaN ≠ zero-sum. Both will grow but in distinct application spaces.

• Long-term margins depend on vertical control. The closer to the wafer, the stronger the moat.