Tesla, the US electric car manufacturer, announced at its first investor day event that it plans to reduce the use of silicon carbide transistors in the power system of the next generation of electric vehicles. The move is aimed at reducing costs without compromising vehicle performance or efficiency. The announcement has caused concern among investors, with shares of related chipmakers falling, including ON Semiconductor and STMicroelectronics, which fell by about 2%, and Wolfspeed, which fell 7% on the day.
Efficiency and Cost Containment Key Themes at Tesla Investor Day
At the investor day event, Tesla's head of powertrain engineering, Colin Campbell, highlighted the company's focus on efficiency gains and cost containment. Campbell demonstrated how Tesla plans to reduce the cost of the vehicle's powertrain while maintaining high performance and conversion efficiency. According to Campbell, Tesla has found a way to reduce the use of expensive silicon carbide transistors by 75% without compromising vehicle performance or efficiency.
No Specific Details Revealed about Next-Generation Electric Vehicles
Although Tesla executives did not reveal any specific details about the "next generation" of electric vehicles, chips made from silicon carbide transistors are widely used in electric vehicles. The Institute of Electrical and Electronics Engineers (IEEE) reports that such chips generally resist heat better, last longer, and are more energy efficient than those made with silicon transistors. However, Campbell did not specify when Tesla's next-generation powertrain could be mass-produced and used in electric vehicles, nor did he specify how much money is currently being invested in these transistors.
Shares in Rare Earth Materials Producer MP Materials Fall
Campbell also revealed that Tesla's next-generation powertrain will use an engine that doesn't contain any rare earth metals. The announcement caused shares in MP Materials, a producer of rare earth materials that supply neodymium to automakers, to fall about 11%.
Analysts Respond to Tesla's Announcement
Bank of America analysts called Tesla's announcement "notable but premature." However, they also acknowledged that "if true, this technological advancement could be a major risk for the silicon carbide material industry and the corresponding device sector." The analysts added that "cheaper SiC chips are likely to drive the adoption of electric vehicles globally, so the increase in total sales volume may partially offset the loss of SiC usage by suppliers."
Analysts at New Street Research generally agreed, writing in a note Thursday that Tesla's announcement is actually a good thing for chipmakers, as they expect electric vehicle demand for silicon carbide chips both inside and outside the industry to remain at a high level. They also don't expect the next-generation, lower-priced Tesla vehicles to be in volume production "before 2025 or 2026."
Wells Fargo analysts maintained their overweight ratings on Wolfspeed and ON Semiconductor, with a target price of $110 for Wolfspeed and $95 for ON Semiconductor. They said that the supply chain for silicon carbide chips will remain tight in the near term due to high demand across the auto industry. Every growing EV maker will seek to scale up while controlling costs, but in the short term is more concerned with securing the supply of silicon carbide chips for new models, they said.
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