Shares of these three stocks are under pressure after Tesla (TSLA) said it plans to use 75% less silicon carbide in vehicles without compromising the performance or the efficiency of the car. The claims are taking a bite out of Wolfspeed (WOLF), On Semiconductor (ON), and STMicroelectronics (STM) in Thursday morning trading.
INVESTOR DAY: Tesla’s stock in under pressure on Thursday following the company’s high anticipated investor day that took place on Wednesday. Despite the high expectations, the event where Elon Musk revealed his “Master Plan 3” was short on specifics, with Tesla not providing explicit guidance. Among the themes at the investor day were the company's plans to cut assembly costs by half, a new plant in Mexico, and the long-term goal of 20M vehicles per year. Tesla also said it plans to use 75% less silicon carbide in vehicles without compromising the performance or the efficiency of the car. The comments are weighing on semiconductor maker and suppliers’ shares on Thursday. The market is seeing the EV maker’s plans as a negative for Wolfspeed, ON Semiconductor, and STMicroelectronics.
Click here to check out Tesla's recent Media Buzz Sentiment as measured by TipRanks.
PREMATURE SIC CLAIMS: BofA says if Tesla’s claims that its upcoming power electronics platform would be able to use 75% lower silicon carbide, or SiC - a key tech used in EV power/inverters - are true, this technological advancement could be a major risk for the SiC materials industry -- Wolfspeed and Coherent (COHR) -- and to devices -- ON Semiconductor and European peers STMicroelectronics and Infineon (IFNNY). However, the firm points out that in the absence of any actual product, timeline, data or independent verification it is unclear how seriously to take this claim. It is also unclear whether the 75% improvement is from Tesla's Gen-1 baseline or current product line-up, noted the firm. If true, cheaper SiC could drive up global EV adoption globally so what vendors lose on content could be partially offset by greater EV volumes. BofA believes ON is supplying Tesla with both SiC and silicon-based conventional technology. The firm maintains a Buy rating on ON Semi shares with a price target of $90.
UNCERTAINTY EMERGES: Also commenting on the news, Deutsche Bank notes that ON Semiconductor is underperforming on Thursday due to Tesla's analyst meeting, where the OEM indicated it can use 75% less silicon carbide, or SiC, in its next generation of vehicles. The firm has no knowledge as to exactly how such savings are achieved nor when this transition may occur. Overall, the SiC ramp at ON is incredibly important, so Deutsche will continue to dig into the details behind the risk of reduced demand from Tesla -- a key customer for ON -- as well as if such a technology shift could become more pervasive across more auto OEMs. The firm expects many SiC-related companies to comment on this dynamic in upcoming investor events. In the meantime, Deutsche continues to believe that the structural transformation at ON to a more focused and profitable company offers a positive risk/reward and therefore maintain its Buy rating on the name with a price target of $95.
AEHR COMMENTS ON TESLA'S PLANS: Aehr Test Systems (AEHR) CEO Gayn Erickson said at the Power America conference on Wide Bandgap Semiconductors that, "At Tesla's Investor Day held in Austin, Texas [on Wednesday], Tesla discussed their plans for a next generation drive unit... In their presentation, Tesla stated that this new inverter would have a 75% reduction in silicon carbide. Aehr wants to make it clear that despite Tesla's statements [on Wednesday], Aehr does not expect a 75% reduction in the total market for silicon carbide wafers. In summary, we believe the announcement by Tesla does not impact the market significantly, either higher or lower, as they are adding a new half power drive train to be used on a new lower cost platform that will increase the market opportunities for Tesla and help drive volumes particularly in lower cost target markets such as China, but also in the US and around the world.... Tesla clarified that the 75% reduction applies only to the next generation lower cost drive units to be included in the new model platform, which is still in development with a yet to be announced initial ship date. Tesla clarified that this will not impact the current high-performance model platforms including the Model S/X and Model 3/Y vehicles. [Read more]
WHAT’S NOTABLE: On Thursday, Raymond James downgraded ON Semiconductor to Market Perform from Outperform without a price target. The downgrade was not a call on business conditions or the company's long-term growth strategy, with ON Semiconductor tracking steadily toward the 2025 target model of $9B in revenue and sustainable gross margins in the 48%-50% range, but is based on valuation, Raymond James explained. With near-term headwinds related to overhead absorption and strategic business exits, combined with a valuation above historical levels, the firm feels there are opportunities elsewhere in analog semis.
PRICE ACTION: In Thursday morning trading, shares of Wolfspeed have dropped over 10% to $67.09, ON’s stock has slipped about 5% to $74.57, and STMicrolectronics has slid about 4% to $46.82. Also lower is Tesla, trading down by nearly 7% to $189.16.
Published March 2nd, 2023 11:37, updated March 2nd, 2023 13:16
