The SiC market has been very active lately, with constant news coming from device suppliers and car makers. And there seems to be an ongoing tug-of-war between supply and demand.

Toshiba announced in April the groundbreaking of its power semiconductor fab for SiC in Ishikawa Prefecture, with the first stage beginning in the 2024 fiscal year. This news echoes earlier reports from Japanese media that Toshiba is strengthening the vertical integration throughout SiC equipment, wafers, and devices, and planning to increase the production by three times in 2024 and 10 times by 2026.

Meanwhile, over the past two years, leading companies in the Europe and the US such as Infineon and ST have also accelerated M&A as well as internal expansion for SiC production devices at an unprecedented pace, aiming to expand their SiC-related businesses and maintain their core competitiveness in the market.

Despite aggressive demand-driven expansion plans, the unexpected announcement from Tesla in mid-March that it plans to reduce overall SiC usage by 75% in the next generation of electric vehicle platforms has sparked various speculations in the industry. This move was made without compromising the performance and efficiency of the cars and represents one of the few specific details that Tesla has revealed about its new car plans.

Now here is the question – will the popularity of SiC be a genuine trend, or merely a passing fad that could lead to a potential bubble in the market?

SiC or Si-based solutions?

Compared to IGBT and MOSFET, the dominant technologies in power semiconductor, SiC offers stronger advantages such as low resistance, high temperature and high voltage tolerance that can overcome the technical bottlenecks of EVs by improving battery efficiency and solving component heat dissipation issues. SiC can also make chip design sizes smaller, which means more flexibility in vehicle design.

These advantages have made SiC the most sought-after technology. According to TrendForce, the SiC power device market is expected to grow at a CAGR of 35% to reach $5.33 billion annually from 2022 to 2026, driven by mainstream applications such as electric vehicles and renewable energy.

There is a long-standing debate among the industry about whether SiC will replace IGBTs entirely. What we believe is that SiC may not completely replace IGBTs considering their distinct targeted use scenarios.

In terms of use cases, SiC is particularly suitable for high-frequency, high-voltage applications, especially in the field of new energy vehicles. Traditional Si-based IGBT chips have reached the physical limit in high-voltage fast charging models, making SiC more favorable for new energy vehicles.

However, SiC transistors are expensive due to complex production processes, slow crystal growth, and difficult cutting. Unlike silicon, which can be pulled quickly, SiC crystals grow at a slow rate of 0.2-1mm/hour and are prone to cracking during the cutting process due to their high hardness and brittleness, leading to hundreds of hours of cutting time.

Additionally, SiC transistors also have some drawbacks such as vulnerability to damage and temperature sensitivity, which makes them unsuitable for low-cost and low-power applications.

IGBT, on the contrary, is preferred over SiC in such a field because it is more cost-effective, reliable, and has better capacitance and surge capability for high-power and high-current applications. In certain scenarios, such as DC-DC charging piles, IGBT is irreplaceable due to its cost advantage and suitability.

Could a Hybrid Solution be the Answer?

The premise above can help to explain Tesla’s conflicting decision to cut back on SiC usage.

Tesla’s reluctance to fully adopt SiC technology is mainly due to concerns about reliability and supply chain stability, as evidenced by a mass recall of Model 3 due to issues with SiC components in the rear electric motor inverter.

In addition, the shortage of substrate materials is another challenge facing the SiC industry as a whole, with major manufacturers such as Wolfspeed, Infineon, and ST ramping up production capacity to address the issue. As a result, Tesla is considering alternative ways to mitigate the risks associated with supply chain constraints.

Despite these challenges, SiC remains a promising trend for the EV industry. Even Tesla recognizes its enormous potential commercial value.

In terms of technological innovations, Tesla’s next-generation EVs may feature a novel packaging design for the primary inverter, utilizing a hybrid SiC/Si IGBT packaging approach that leverages the unique strengths of both technologies while avoiding potential pitfalls. This technological advancement poses certain difficulties, but the groundbreaking innovation at the engineering design level is definitely something to look forward to.

Read more:

• Chinese Players Rally for Demand Surge in MOSFET, IGBT, and SiC
• The M&A battle for SiC: Who’s the Top Acquirers?

(Photo credit: Tesla)

The compound semiconductor market has been flourishing in recent years thanks to the strong demand from markets such as electric vehicles and renewable energy. This has led to an increase in M&A as companies race to establish their position in the industry.

The market has seen a significant surge in M&A deals over the last few years: from 2006 to 2017, there was only one deal every two years, but since 2018, there have been six deals annually, surpassing historical data.

While SiC and GaN are the top categories for M&A, 21 of the transactions are directly related to SiC. This is because after its development over 20 years, SiC has been able to be mass-produced for market demands, particularly in the automotive industry where SiC has become the mainstream technology.

Vertical Integration driven by Industry Titans

Industry leaders in the US and Europe, such as Wolfspeed, On Semi, II-VI, ST, and Infineon, have started accelerating vertical integration in recent years, as reflected in the frequency of M&A.

The United States has led 12 M&A deals, with only four of them occurring before 2018, and Wolfspeed contributed to three of them. Over the past three years, On-Semi, II-VI, and Macom have led several deals with a focus on SiC’s vertical integration to meet market demands.

In Europe, there were eight M&A deals in total, all of which took place in 2018 and beyond, with ST and Infineon being the major players. Both companies have been accumulating technical strength through strategic acquisition to maintain their leading ground in the SiC power device market.

In 2019 and 2020, ST acquired Norstel AB to bolster its SiC wafer manufacturing capabilities and Exgan to improve the GaN power device design expertise. Similarly, Infineon acquired Siltectra GMbH in 2018 to gain control of the crucial SiC wafer cold split process technology and recently acquired GaN Systems to reinforce its presence in the GaN market.

It’s evident from the cases that the high frequency of M&As in the US and Europe is mainly driven by leading companies in the industry, gradually defining the landscape of the market.

Wolfspeed, which has grown into a leading company after a long period of time, has accumulated enough capital for M&A and gradually been transforming into a platform-type company. Meanwhile, Onsemi, ST, and Infineon, which have traditionally been platform-type companies with established expertise in the field of compound semiconductors, are now ramping up their M&A activities to expand market presence and generate strong growth momentum.

Market Landscape Continues to Change

M&A deals among semiconductor equipment companies are also receiving attention. Recently, ASM and Veeco have successively acquired LPE and Epiluvac, indicating that equipment manufacturers have also realized the huge potential of the SiC market and are accelerating their investment.

Given the rapid technology breakthroughs, the overall SiC power device market is predicted to grow at an annual rate of 41.4% to reach $2.28 billion by 2023 and $5.33 billion by 2026 at 35% annual growth, according to TrendForce’s latest report.

However, with the current market boom comes a new challenge – the supply shortage. One of the biggest obstacles to industry growth is the scarcity of SiC substrate material, despite efforts from companies like STM and Onsemi to ramp up their production.

Manufacturers are now on the hunt for both internal and external sources to keep the supply flowing. While most of the SiC substrate suppliers are expanding, only a few, like Wolfspeed, are controlling the manufacturing capacity for high-end SiC substrates used in automotive main inverters, which worsens the bottleneck in SiC devices’ production for cars.

With that being said, major players must quickly address technology hurdles and supply issues to bridge the market gap. This will inevitably drive intense competition and industry consolidation, and only the ones that can adapt quickly will be thriving in the long run.

Read more:

• SiC vs. Silicon Debate: Will the Winner Take All?
• Chinese Players Rally for Demand Surge in MOSFET, IGBT, and SiC

Since the 1980s, Toyota collaborated with Denso to conduct research on SiC. In 2014, SiC inverters were installed in Toyota’s Prius and Camry hybrid electric vehicles (HEVs) for driving and on-road testing, confirming a 5-10% improvement in energy efficiency. After this successful testing, Toyota adopted SiC in its hydrogen fuel cell buses that were put into formal operation in 2015 and 2018. At that time, the cost of SiC chips was higher than it is now, so Toyota continued to primarily use Si-IGBT inverters in its hybrid vehicle models.

Model 3 SiC Inverter Sparks Toyota’s Concerns About Electrification

In 2017, the Model 3, equipped with SiC inverters, became the best-selling battery electric vehicle (BEV) on the market due to its high performance and long range. It also contributed to the surge of new BEV sales, which exceeded 1.2 million vehicles in 2018. Since then, many automakers have targeted SiC as the basis for next-generation BEV drivetrain systems, while Toyota continued to adhere to its hybrid electric vehicle (HEV) and hydrogen fuel cell vehicle (FCV) strategies. According to TrendForce, the total new sales of PHEVs and BEVs is estimated to reach approximately 10.63 million vehicles in 2022, while Toyota’s sales in this sub-market are only close to 100,000, accounting for about 1% of the market share, far behind BYD’s 19% and Tesla’s 15%.

In the current EV industry, BEVs and PHEVs have become the mainstream, while HEVs may gradually shrink in the future market. Pressures from the changing market have forced Toyota, which has not fully focused on BEVs and PHEVs in the past, to rethink its overall electrification strategy and accelerate the production capacity and technological layout of key components, such as SiC.

Toyota aims to sell 3.5 million electric vehicles by 2030, and has demonstrated its commitment to electrification through the establishment of a SiC wafer manufacturing technology research company. SiC chips have the potential to improve energy efficiency in electric vehicles, but their high cost is currently a challenge due to low SiC wafer yields in the manufacturing process. QureDA Research’s Dynamic AGE-ing technology could help improve wafer yields and lower chip costs. If successful, this technology, combined with Toyota’s market presence, could enhance the competitiveness of Toyota’s electric vehicles and give them a chance to compete for a leading position in the future electric vehicle market.

（Image credit: Toyota LinkedIn）

Tesla recently announced that its next-generation EV platform will reflect a 75% reduction in SiC components, though this reduction will be made without compromising vehicle performance and safety. This announcement is one of the very few specific details that Tesla has provided to the public about its plan for the development of its future vehicle models. Therefore, it has also trigger a variety of speculations across the automotive industry. According to TrendForce’s investigation, Tesla does not appear to have much confidence in the stability of the supply chain for SiC components. In the past few years, Tesla has been forced to initiate several recalls for the Model 3. One official reason given for the recalls was that the inverters of some of the Model 3 had power semiconductor components with minor manufacturing differences. As a result, these inverters could malfunction after a period of operation and would not able to perform the regular task of current control. This explanation directly points to a quality issue with the SiC components that Tesla has procured for its vehicles.

Additionally, a production capacity crunch for substrates has been the most significant challenge in the development of the market for SiC components. The major suppliers for SiC components and SiC substrates such as Wolfspeed, Infineon, and STMicroelectronics are currently adding a lot more production capacity. At the same time, Tesla is proceeding with the strategy of diversifying its suppliers for SiC components in order to minimize the risk of disruptions in the supply chain.

SiC components are certainly a key category of automotive electronic components that EV manufacturers like Tesla are going to consider when building their future vehicle models. Therefore, in the context of technological advancements, TrendForce believes that Tesla could adopt a hybrid SiC-Si IGBT package for the inverter of its next-generation EV platform. However, switching to such solution will entail disruptive innovations at the engineering and design levels, so this transition will raise many challenges. Also, regarding SiC MOSFETs that have been a critical part of today’s EVs, TrendForce anticipates that their mainstream structural design will transition from planar to trench. Currently, Infineon, ROHM, and BOSCH are the main suppliers for trench SiC MOSFETs.

On the whole, the hybrid SiC-Si IGBT package and trench SiC MOSFETs are technologies that can substantially reduce the total cost of SiC components for a vehicle. They also reduce the complexity and cost of an entire vehicle platform. These benefits, in turn, can help raise the penetration rate of SiC components in the low-end and midrange segments of the EV market. On the other hand, the widening adoption of SiC components could affect the market share of Si IGBTs.

In the market for automotive SiC components, Tesla has been acting as a major indicator of demand and product development trends. Therefore, the semiconductor industry has been paying close attention to this carmaker’s activities. Since Tesla has so far given very few details about its next-generation EV platform, TrendForce says more observations are needed to determine the reasons behind the reduction in SiC content.

Tesla has caused a lot of buzz in the global car market by cutting prices across several regional markets. The US, China, Europe, and Japan have all seen a significant drop in prices of Tesla vehicles, with magnitudes ranging from 6% to 20%. The US, in particular, has seen the largest cut in the average price of Tesla vehicles. The price of the RWD version of the Model Y has come down to USD 13,000, showing a reduction of 19.7%.

Tesla Aims to Increase Market Share and Put Pressure on Competitors

Tesla sold 1.313 million battery-electric vehicles (pure electric vehicles) in 2022 and retained its leadership in this niche segment of the car market. However, its market share for battery-electric vehicles has been shrinking from 24.5% in 2020 to 20% in 2021 and just 17% in 2022. This in part has to do with the rising number of entrants this market as well as the rising number of battery-electric models that are being offered by these competitors. Furthermore, China accounts for more than half of the global electric car market. Therefore, Tesla has found that its sales performance in China significantly affects its overall market share.

In the Chinese electric car market, sales efforts are concentrated on “economical” or affordable models that are priced within the range of CNY 150,000~200,000. Before Tesla initiated its recent price cuts, the starting price of the Model 3 had been at CNY 265,900, which is way above the mainstream price range.

However, the price of the Model 3 has been slashed by 13.5%, with the starting price now arriving at CNY 229,900. Since the price difference between the Model 3 and the competing economical models has shrunk to 15%, Chinese consumers that are mostly residing within the CNY 150,000~200,000 range could be much more receptive to Tesla’s messaging. Also, many Chinese carmakers have lately raised prices on their electric models because of high cost pressure. Tesla is thus expected to benefit by taking the opposite approach for pricing.

Turning to the US, the biggest benefit that Tesla has touted for this round of price slashing is the eligibility of its vehicles in obtaining a tax credit of up to USD 7,500. The Inflation Reduction Act of 2022 contains a provision that subsidizes the purchasing of a new electric car with a tax credit. Electric SUV or vans that are priced no higher than USD 80,000 and other types of electric vehicles that are priced no higher than USD 55,000 are eligible. In the case of Tesla’s Model Y, the version with three rows of seats (i.e., a total of seven seats) can apply for the tax credit as an electric SUV, whereas the version with two rows of seats (i.e., a total of five seats) can apply for the same benefit as one of the other types of electric vehicles.

For consumers in the US, the price of the Long Range version of the Model Y in 2023 is now 31.1% lower than it was in 2022 because of the price cut and the tax credit. Besides turning consumers’ heads, Tesla is also putting a lot of pressure on its competitors with this undercutting strategy. After all, Tesla’s vehicle models tend to serve as the base standard for carmakers’ electrified offerings.

Tesla Has a Firm Grasp on Fluctuations in Prices of Key Components, Thereby Making Cost Sensitivity a Competitive Advantage

In addition to discussing the effects of Tesla’s price cuts on itself and competitors, and other important issue that needs to be addressed is why Tesla can lower prices when other carmakers are compelled to raise them. To answer this question, we first turn to Tesla’s profit margin. Compared with its competitors, Tesla has a larger room for profit. Therefore, it can lower prices in exchange for more vehicle sales and market share.

This leads to the question as to how Tesla has attained such a large profit margin. The answer is that Tesla is excelled at managing its cost structure and supply chain. With respect to supply chain management, Tesla takes a different approach and has gotten involved more deeply than do other carmakers. For instance, Tesla directly sources components and do not rely on Tier-1 suppliers for system integration.

By contrast, traditional carmakers assemble vehicles with the finished parts provided by Tier-1 suppliers. From Tesla’s perspective, directly sourcing components and doing its own system integration offer some notable advantages. First, this approach facilitates the adoption of the latest technologies at the component level. Second, Tesla is much more aware of costs and also exerts a greater control over them. On the whole, Tesla has a better sense of the price fluctuations in the upstream than do its competitors.

The degree of Tesla involvement in its supply chain is also reflected in its activities in the global lithium market. The soaring demand and the Russia-Ukraine military conflict caused lithium prices to rise rapidly during the 2021~2022 period. Carmakers now recognize that the only effective way to secure the supply of raw materials and control the costs of these materials is to manage the upstream.

However, Tesla is not simply securing lithium supply contracts. It is also thinking about getting involved in ore mining and metal refining. Tesla’s activities in recent years have led to a capacity crunch in the market for mining and processing lithium ores. Since lithium is incorporated into power batteries through multiple phases of additional processing, carmakers tend to suffer the most when it comes to lack of price transparency.

（Image credit: Tesla LinkedIn）