The rapid ascent of the electric vehicle (EV) industry has ushered in a wave of innovations, particularly in the domain of semiconductor technologies that power these automobilesAmong these, silicon carbide (SiC) chips have emerged as pioneers of advanced materials, witnessing a surge in development over the last few yearsDespite the overall turbulence within the automotive chip market, which often grapples with supply chain issues and fluctuating demands, silicon carbide maintains a relatively robust position, standing out as one of the few segments that appear to weather the storm.

This burgeoning interest in SiC chips has, however, drawn the attention of numerous manufacturers eager to stake their claims in this lucrative marketAs we approach 2024, the landscape is set to become increasingly competitive, with price wars and potential mergers and acquisitions dominating the headlines in the semiconductor realm.

The move towards an eight-inch wafer production era signifies an impending uptick in SiC chip output that will ultimately flood the market

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Further complicating the situation is the proactive stance taken by global silicon carbide giants, which includes forging collaborations with Chinese firms to boost their foothold in one of the world's largest automotive marketsThis confluence of local partnerships and heightened production capacity suggests that the competition within the SiC market is not only fierce but likely to escalate in the upcoming years.

One of the primary factors underlining the current dynamics in the SiC sector is a significant reduction in costsHistorically, the production of silicon carbide technology was distinguished by its hefty price tags, which posed barriers to its widespread adoptionHowever, as more electric vehicles adopt SiC technology and an increasing number of wafer fabrication facilities come online, the market is confronted with a new reality characterized by intensified competition that drives prices down.

According to Yu Yiran, executive director at CIC China Insights Consulting, the silicon carbide wafer market has seen a staggering price adjustment, plummeting by nearly 30% in 2024. For instance, prices for six-inch SiC substrates have dipped to below $500 mid-year, approaching the cost line for Chinese manufacturers

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By the fourth quarter of 2024, these prices are projected to slide even further, potentially reaching as low as $450.

TrendForce analyst Gong Ruijiao has corroborated these findings, pointing out that six-inch conductive silicon carbide substrates will see price reductions exceeding 20%, driven chiefly by a considerable influx in production capacity and escalating market rivalry.

Yu explains that the reasons behind this pricing phenomenon are multi-faceted, “Firstly, a rapid increase in the global production capacity for six-inch SiC wafers combined with a slowdown in the electric vehicle market demand has culminated in an oversupply situation, compelling prices downwardSecondly, Chinese suppliers, in a bid to capture more market share, have ignited intense price wars that destabilize the market, forcing many players to sell at a loss simply to stay competitiveAdditionally, advancements in technology and the emergence of economies of scale have helped lower manufacturing costs, further catalyzing price declines.”

The influence of automotive manufacturers on supply chain pricing cannot be overlooked

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Tesla, recognized as a trailblazer in deploying silicon carbide modules, recently hinted at a strategic pivot to minimize reliance on silicon carbide in its vehicles, a move thought to be influenced by previously high costs associated with these materials.

While the market dynamics favor price reductions, electric vehicle manufacturers have been notably stringent about supply chain costs recentlyThis trend inevitably necessitates that SiC suppliers align their strategies accordingly.

Furthermore, international manufacturers are also scrabbling for opportunities to capitalize on the Chinese market for silicon carbide applications, especially as the global automotive chip industry encounters ongoing inventory pressuresNotably, Chinese markets remain a beacon of growth compared to their external counterparts.

Several industry analysts have noted that sales of fully electric vehicles in overseas markets have not met anticipated targets, while hybrid models have experienced rapid growth

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This divergence has placed significant strain on the overall global automotive chip industry, which is now navigating a phase of consolidation following explosive growth in prior years.

Despite these pressures, data shows that the Chinese market stands as the sole territory offering incremental growth opportunities, spurring overseas firms to accelerate partnerships with domestic enterprisesOne such case is STMicroelectronics, which announced a joint venture with Sanan Optoelectronics in Chongqing to construct a silicon carbide production facility by June 2023, prioritizing the burgeoning automotive industry.

Yu Yiran elaborated on this collaboration, emphasizing that the joint venture aims to achieve an annual production capacity of 480,000 automotive-grade MOSFET chips, marking the first ever eight-inch silicon carbide substrate and wafer production line in ChinaProduction is expected to kick off in the fourth quarter of 2025, with total weekly output hitting 10,000 wafers upon full-scale operations by 2028.

“STMicroelectronics’ decision to expand into China is driven not only by the desire for more efficient market servicing but also by the impressive level of self-sufficiency in the new energy vehicle supply chain here,” she remarked

The partnership promises to leverage STMicroelectronics' technological prowess alongside Sanan's market resources to jointly pursue the silicon carbide market and entice new energy vehicle manufacturersThis new production line will enhance competitive advantages but potentially squeeze smaller, less technologically advanced domestic firms.

However, the introduction of this capacity could provoke intensified price competition within the silicon carbide market, which might lower prices furtherIn contrast, price reductions may catalyze increased adoption of these chips within sectors like electric vehicles.

The impact of price competition is becoming evident in the financial performance of certain supply chain companiesFor instance, Dongguan Tianyu Semiconductor recently disclosed in its initial public offering that its revenue for the first half of 2024 dipped to 361 million yuan, marking a 14.8% decrease year-on-year, with the company shifting from a profit of 21 million yuan in the year before to a loss of 141 million yuan in 2024.

The company highlighted that their financial difficulties stemmed from the plummeting prices in the silicon carbide substrate market and international trade tensions

There is also a looming threat of ongoing impacts, including challenges related to framework sales agreements that stipulate price or quantity commitments, alongside efforts to ramp up production capacity.

In response, Dongguan Tianyu has outlined a multifaceted strategy involving expanding its customer base, enhancing sales volume, optimizing operational efficiency, and advancing product technology capabilities.

This pertains particularly to the current market, where most products are being mass-produced on four-inch or six-inch wafersWith the anticipated launch of more eight-inch silicon carbide wafer production facilities globally, the overall market will soon experience a significant influx of these chips.

Looking forward, the company reiterated that the global epitaxy industry is witnessing a substantial expansion in production capabilityCoupled with rapid technological advancements, the potential decrease in pricing for its epitaxial products might be adversely impacted by this increase in supply.

According to Yu Yiran, leading players such as Wolfspeed, ON Semiconductor, and Infineon are actively ramping up production of eight-inch SiC wafers

Wolfspeed has plans for a new fabrication facility in the United States, while Infineon’s wafer plant in Malaysia is slated to commence large-scale production in 2025, with domestic manufacturers like TianKe HeDa and Shandong TianYue also enhancing their capacities.

“Despite these expansions among major firms, the slowing growth rate in the global automotive semiconductor market may inhibit demand, leading to an overcapacity riskCurrent estimates indicate a supply-demand gap of approximately 30% in SiC; however, if capacity growth outpaces demand, the threat of oversupply may materialize,” she further analyzed.

Yet Gong Ruijiao asserts that in markets with high entry thresholds, such as automotive and high-end industrial applications, there is unlikely to be an occurrence of excessive competition in the short term, thus mitigating the risk of overcapacity.

In light of the intensifying competition in the silicon carbide sector, consolidation within the supply chain has become an inevitable trend

Observations denote that this consolidation encompasses both horizontal integration and vertical integration across various segments of the supply chain, demonstrating an ongoing expansion of operational capabilities among firms in the silicon carbide sphere.

For instance, Onsemi announced in December 2024 its agreement to acquire Qorvo's silicon carbide JFET technology business for $115 million, including its United Silicon Carbide subsidiaryThis acquisition is intended to bolster Onsemi’s EliteSiC power product portfolio, addressing the demand for high efficiency and power density in AI data center power supply units, while also gearing for new ventures in electric vehicle circuit breakers and solid-state circuit breakers (SSCB).

Moreover, in May 2024, MinebeaMitsumi Incfinalized its acquisition of all shares in Hitachi Power Semiconductor Device Ltd., and further procurement of Hitachi Group's power device business overseas sales operations

The publicly shared motivation underscores a strategic ambition to expand its IGBT business spectrum, which hitherto was solely chip-focused, seeking to acquire backend processing technologies and capabilities for modules as well.

Through technology team integration, MinebeaMitsumi looks to leverage synergies between its power device business and existing operations to tap into near-SiC performance through silicon-based power devices and delve deep into high-voltage SiC power device arenas.

Despite the competitive atmosphere, new avenues for growth are being explored beyond electric vehicles, with emerging trends in energy storage, data centers, and even augmented reality devices showing promise for silicon carbide integration.

MinebeaMitsumi noted that applications for silicon carbide power semiconductors are expanding into numerous sectors, such as green technologies (renewable energy like wind and solar), electric power and grid systems, large transportation equipment, data centers, and various medical applications such as heavy ion radiotherapy and MRI.

Yu Yiran observed that 2024 is poised for heightened mergers and acquisitions activity within the silicon carbide industry, primarily aimed at rapidly acquiring new technologies and market share, accelerating product development, and achieving vertical integration from chip development to packaging and module production