The global silicon carbide (SiC) landscape has recently undergone a significant transformation, marked by contrasting financial results between leading firms in the sector, particularly between dominant overseas corporations and rising Chinese manufacturersWhile these foreign giants struggle with increased losses, Chinese companies are experiencing a surge in performance, signaling a potential shift in the industry’s balance of power.

Wolfspeed, a key player in the SiC power component market, reported its financial outcomes at the end of August 2024. The company noted a revenue of $807 million for the fiscal year 2023, representing a substantial decline of 12.44% year-over-yearFurthermore, it recorded a staggering net loss of $864 million, marking a drastic increase in losses of 161.96%. This downturn in both revenue and profit highlights the challenges faced by established companies in adapting to a rapidly evolving marketplace.

In stark contrast, leading Chinese SiC manufacturers are enjoying robust growth in their financial metrics

According to data from Choice, Tianyue Advanced's revenue for the first half of 2024 reached approximately 912 million yuan, showcasing a remarkable year-on-year growth of 108.12%. Similarly, Sanan Optoelectronics reported revenues of 7.679 billion yuan, up 18.70%, and Yangjie Technology also demonstrated positive growth, with revenues rising by 9.16%. These numbers indicate a clear upward trend for Chinese companies against the backdrop of their foreign competitors' struggles.

The primary driver behind this disparity appears to be the rapid emergence of Chinese firms in the SiC market, which are leveraging cost advantages and competitive pricing strategies to enhance their market share significantlyThis shift has resulted in some foreign manufacturers facing almost negligible profitabilityCoupled with factors such as depreciating fixed assets and underutilization of production capacities, the profitability of these overseas companies is considerably diminished.

Nevertheless, a critical consideration for the future remains how large the SiC market is and whether Chinese firms can sustain their competitive edge on a global scale as the industry evolves.

Silicon carbide is recognized as a third-generation semiconductor, extensively applied in burgeoning sectors such as electric vehicles (EVs), 5G technology, and photovoltaic (PV) energy solutions

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SiC power devices offer numerous advantages over their predecessors, including reduced energy loss, smaller component sizes, and higher switching frequencies.

In particular, the electric vehicle and photovoltaic solar power sectors stand out as the primary applications for SiC devicesResearch from Ping An Securities emphasizes that SiC power devices significantly enhance components like inverters and onboard chargers in vehicles, delivering improved inverter efficiency, system miniaturization, reduced overall costs, and extended driving rangesAlthough current SiC-MOS devices are approximately three times more costly than traditional Si-IGBT devices, Infineon's calculations suggest that the former can reduce energy losses by 6% to 10%. This reduction can lead to cost savings that outpace the additional costs associated with SiC devices.

Additionally, the advantages of SiC technology are magnified within 800V platforms

For example, the Xiaopeng G9 model demonstrates a 5% increase in range compared to 400V platforms, allowing for over 200 kilometers of range with just 5 minutes of chargingThe entry of popular models like BYD's EV series, NIO's ES6, and Li Auto's L9 has further fueled the demand for SiC power devices.

Market forecasts from TendForce indicate that by 2027, SiC power devices for electric vehicles could become the dominant segment, potentially reaching a market size of $6.3 billion, with $5 billion of that figure attributed specifically to EV applicationsIn the PV energy sector, SiC technology is projected to boost efficiency from 96% to over 99%, while simultaneously reducing energy consumption by over 50% and extending the lifespan of equipment significantlyCASA forecasts that SiC power devices will account for 50% of the PV sector by 2025, with the global market size for PV-oriented SiC devices approaching $2 billion by 2026.

The correlation between the growth of SiC devices and the booming electric vehicle market is evident, especially as China leads the world in the production and consumption of electric vehicles

Data from the China Association of Automobile Manufacturers reveals that in the first half of 2024, China produced 4.93 million electric vehicles, marking a significant year-on-year growth of 30.01%, with sales reaching 4.94 million and capturing over 50% of the global market share.

Consequently, the health of the Chinese electric vehicle market is a key driver affecting the scale of SiC power device production.

Moreover, while overseas manufacturers historically held a leading position in the SiC substrate domain due to earlier investments and accumulated experience, the rise of local players has begun to shift the tideAccording to statistics from TrendForce, 2023 saw significant market share held by companies such as STMicroelectronics, Infineon, On Semiconductor, Wolfspeed, and ROHM Accounting for 91.9% of SiC MOSFET devices, indicating a near-monopolistic grip on the global market.

The prominent losses reported by Wolfspeed can be understood through various factors, including depreciation and underperformance in capacity utilization, but the core issue seems to be the inversion of value attributed to SiC devices

The production chain of SiC power devices is complex, encompassing stages from substrate and epitaxy to device design, wafer manufacturing, and module packaging, with substrate and epitaxy costing over 70% of the total product costConsequently, possessing strong capabilities in substrate and epitaxy is essential for dominating this market.

Despite a late start, Chinese firms like Tianyue Advanced and Sanan Optoelectronics have ramped up their operations and, thanks to aggressive expansion strategies, are significantly closing the gapAs of the end of 2023, China’s 6-inch SiC substrate production capacity accounted for 42% of the global output, with forecasts suggesting it could reach approximately half by 2026.

For instance, Tianyue Advanced has successfully transitioned to profitability by improving its scale through increased capacity utilization, with its gross profit margin rising from 11.3% in the previous year to around 23% in the first half of 2024. This success has attracted a notable client base, encompassing over half of the world's top ten power semiconductor firms.

Tianyue has also established long-term partnerships with well-known entities such as Infineon and Bosch, illustrating its vital role in the supply chain by meeting significant portions of these companies' substrate demands.

Other Chinese firms like Sanan have also begun realizing their potential in silicon carbide, with substantial monthly output capabilities ranging from 16,000 to 29,000 pieces