Source: Toonkawa Technology Review
Author: Ho Lu-heng

Last year's$Tesla (TSLA.US)$On Investor Day, Musk announced that every Tesla vehicle will reduce the use of silicon carbide chips by 75%, directly naming the company$Wolfspeed (WOLF.US)$The company was admitted to ICU.

Wolfspeed started in the LED lighting business, and in its pursuit of “luminescence,” Wolfspeed accidentally discovered silicon carbide, an essential material for electric vehicles. With the explosion of the NEV market, Wolfspeed resolutely changed the track and competed in style and level in the new energy market surrounded by wolves.

In its heyday, Wolfspeed held 60% of the world's silicon carbide substrate production capacity, and major automotive chip manufacturers such as Infineon and ST all had to seek even Wolfspeed's production capacity.

However, with the end of Tesla Investor Day, all the hustle and bustle and fervor seemed to be brought back to its original form in an instant. The electric vehicle price war that followed made up another fatal blow to the price of silicon carbide.

In the second half of 2023, Wolfspeed's cumulative net loss reached 540 million yuan, an increase of 361.49% over the previous year, leaving only 1/4 of the highest share price.

It's not unusual for Musk to break up an industry with one sentence, but I'm afraid someone else is behind the Wolfspeed massacre.

I can't take all of Musk's words

In March 2016, Tesla released its fourth model, the Model 3, and the price dropped below 40,000 US dollars. Compared to the previous Model S model, the Model 3 reduced the price while achieving 90% of the battery life of the Model S.

Just as friends and merchants pulled out magnifiers to seriously “study,” Tesla leisurely threw out the secret recipe for cost reduction: 48 silicon carbide MOSFET power chips on the electric drive system inverter.

In electric vehicles, the power battery is DC, and the motor requires AC to work. This requires an inverter in the electronic control process to convert DC to AC, and then the entire power system converts electricity into power for the car to drive.

In this process, the conversion efficiency of the two steps is the key to determining the range of an electric vehicle.

As the core component of inverters, power chips generally use silicon-based IGBTs, while Tesla chose silicon carbide MOSFETs. According to relevant estimates, electric vehicles equipped with silicon carbide MOSFETs have a 5-10% longer battery life compared to silicon-based IGBTs, a 75% reduction in loss, and a 5% increase in overall system efficiency [9].

IGBTs and MOSFETs are commonly used power devices, but in the past, they all used silicon as raw materials, and switching to silicon carbide could successfully get on the car. Tesla was the first.

The problem with silicon-based IGBTs is that their power conversion efficiency is naturally low, and they generate a lot of heat. To prevent heat from getting out of control, car companies also have to pay extra for high-performance cooling systems [1].

However, silicon carbide MOSFETs are small in size, have low heat generation, and also have higher thermal conductivity. The same power conversion can be achieved by only 1/10 of the size of a silicon device.

Therefore, even though the cost of silicon carbide materials is roughly 5 to 6 times that of silicon materials, car companies can use lower cost cooling systems and smaller batteries to save more money, simply explaining what talent is greater than effort.

According to estimates by relevant agencies, the cost of silicon carbide MOSFETs increased by nearly 1,500 yuan compared to silicon-based IGBTs, but saved nearly 2,000 yuan in vehicle costs [2].

At the same range, switching to silicon carbide can reduce the battery cost of an electric vehicle by approximately $750 [2].

Silicon carbide has always been a relatively niche market. After applying silicon carbide MOSFETs in the Tesla Model 3, Wolfspeed instantly transformed from an unknown small factory into an extremely sexy silicon carbide faucet.

In 2020, Wolfspeed alone accounted for 60% of the world's production capacity of conductive silicon carbide needed for automobiles.

With Tesla's exemplary leading role, new domestic forces have begun copying work one after another.

In 2020,$BYD COMPANY (01211.HK)$In the motor controller of the high-end model “Han”, a silicon carbide power module was used for the first time;$NIO Inc (NIO.US)$ET7 using silicon carbide materials was also launched in 2021; in 2022, the Xiaopeng G9 model was equipped with a silicon carbide electric drive platform.

Wolfspeed, which won the lottery, not only sold the lighting business and LED business, but also directly changed the company name (formerly CREE) to show its determination to transform.

Along with the influx of orders, the price of silicon carbide rose in response, and the car companies' original cost reduction tool became a cost burden. Musk, who took silicon carbide to the altar, was punched by the Chinese car company with an iron fist: it made you applaud, and didn't let you steal production capacity with me.

Here's the scene at the beginning of the article: Musk announced on Investor Day that he would reduce the amount of silicon carbide used in each vehicle by 75%.

Don't sell flour and bread at the same time

Just as a chip is “cut” from a silicon wafer, a silicon carbide MOSFET is also “cut” from a silicon carbide substrate.

A 6-inch silicon carbide substrate can cut out about 300 silicon carbide MOSFETs, and a Model 3 will use 150 silicon carbide MOSFETs. In other words, the two Model 3 will use up a full 6-inch silicon carbide substrate, and the cost of the substrate alone is around $800 [3].

In 2021, Model 3 sales exceeded 1 million, and the corresponding substrate consumption was 500,000 pieces. However, this year, the global usable production capacity of silicon carbide substrates was only 200,000 to 300,000 pieces. In other words, the world's backbone can't support a Tesla.

The 48 silicon carbide MOSFETs on the Model 3 directly cost up to $700 [1]. Musk, who had just dropped his flag, had no choice but to arrange for silicon carbide to be added to the death list.

Generally speaking, after being widely used, standardized parts will experience the “scarce - expansion - oversupply” trilogy, and finally form a stable price cycle under the butcher of the price war. However, the price of silicon carbide remains high, and the core difficulty is “expanding production.”

Compared to traditional silicon wafers, crystals on silicon carbide substrates grow twice as slowly. Traditional silicon materials only take 3 days to grow into a crystal rod, while silicon carbide rods take 7 days, resulting in low silicon carbide production efficiency.

At the same time, the brittle nature of silicon carbide makes it easy to break edges when cutting, and production capacity for semiconductor-grade silicon carbide wafers is very scarce.

Another reason is in the industrial chain structure:

Simply put, automotive silicon carbide can be simply divided into two parts: substrate and epitaxial (upstream materials), and device design and manufacturing (downstream products). Among them, the upstream substrates are$Coherent (COHR.US)$These material giants, and downstream devices$STMicroelectronics (STM.US)$,$INFINEON TECHNOLOG (IFNNY.US)$The site of such a major automotive chip manufacturer.

The problem is with Wolfspeed, which claims to be “the world's only silicon carbide IDM.”

Wolfspeed is almost the only all-inclusive upstream and downstream manufacturer in the silicon carbide field. At the same time, it has a large production capacity for upstream substrates. The pace of expansion of production has a decisive impact on the supply chain of the entire industry chain. As long as Wolfspeed's production capacity doesn't go up, the price of silicon carbide won't drop.

Just like a company that makes both flour and bread, expanding flour production and reducing prices. Although the cost of their own bread has decreased, the competitiveness of other bakeries has also increased.

Flour production has been cut and prices have increased, and the operating costs of other bakeries have risen, but the competitiveness of their own bread has also declined.

I'm not only afraid that my brother will suffer, but I'm also afraid that my brother will drive a Land Rover. Upstream and downstream, you defend me and I defend you. The result is that production capacity has been slow to increase, which only forces car companies to take a different approach.

One is the Tesla route: through customized module packaging technology, the amount of silicon carbide is reduced while maintaining the same energy conversion and heat dissipation effects. In other words, chew and swallow slowly, so you can be full even if you eat less bread.

One is the Chinese route: isn't it just flour, who wouldn't make it?

Chinese company overtakes cars at curves

In March of this year,$XIAOMI-W (01810.HK)$The car pricing fog is finally over. According to industry estimates (note this is an estimate) [11], the single motor version of the Xiaomi SU7 uses about 64 silicon carbide MOSFETs, and the dual-motor version uses enough 112 pieces. This does not include other aspects such as charging piles.

The 800V silicon carbide high pressure platform has always been the focus of Xiaomi's promotion during the half-year construction. In view of the high cost of silicon carbide, Lei Jun also released smoke bombs, saying the configuration was no less than 400,000 yuan.

The results press conference was over, and the most expensive version was 300,000. The huge gap with pricing is due to Xiaomi's concessions, as well as the “sending warmth” of the domestic silicon carbide supply chain first.

Unlike the “only vertical integration” that Wolfspeed is proud of, the division of labor among all links in the domestic silicon carbide industry chain is clear.

For example, upstream substrates the most, and does not extend the business to devices and modules; device and module manufacturers also have a clear division of labor: compared to the IDM model that integrates design, manufacturing, and packaging for major overseas manufacturers, Chinese manufacturers also prefer a model where each of the three links performs its duties.

Infineon and ST Semiconductors, which have the highest shipments of silicon carbide MOSFETs in the world, are in the IDM model, and a large part of domestic shipments rely on foundries such as Huahong Semiconductor and VeriConnect.

In other words, Chinese companies are flour mills that specialize in flour, bakeries specialize in bread, and even separate companies that make noodles, pouring agents, and packaging.

On the one hand, it is an objective technical level limitation; on the other hand, Chinese companies, as latecomers, can only rapidly increase production capacity in a short period of time and narrow the gap with overseas companies only with a more detailed division of labor.

Wolfspeed built an 8-inch substrate factory in 48 months, and the domestic supply chain is likely to simultaneously build a substrate factory, a foundry, a module factory, and a sealing and testing factory in the same period of time.

Under this level of strength, although the domestic silicon carbide production capacity base is low, the growth rate is astonishing.

Japan's Fuji Economy's multi-year follow-up report shows that in the global silicon carbide substrate market in 2023, the two Chinese manufacturers entered the top five for the first time. Among them, Tianyue Advanced squeezed out Coherent, which is second only to Wolfspeed [4].

Research agency Trendforce aggressively predicts that by the end of 2024, the annual production capacity of Chinese manufacturers will reach 1.5 million tablets. According to this calculation, half of the world's silicon carbide substrates will come from China [5].

In addition to the multi-line attack strategy of small forces, the characteristics of the silicon carbide substrate also gave the Chinese company an opportunity to overtake a corner (a real curve, the kind that can flow into the main road):

Currently, mainstream silicon carbide substrates are still 6 inches. Like silicon wafers that “cut” a chip, when the chip size does not change, the larger the substrate size, the less scraps are wasted. The increase from 6 inches to 8 inches would reduce the unit cost by 35% [5].

With the exception of Wolfspeed, most overseas manufacturers' 6-inch production line construction costs have not been fully depreciated; they can only allow finance to settle accounts while moving towards 8 inches. However, domestic manufacturers that go to the market lightly have no burden; they can directly spend capital expenses on 8-inch production lines.

In 2023, out of 12 8-inch projects launched globally, 3 were led by Chinese manufacturers, and 1 was jointly organized by Chinese and European companies.

At the Guangzhou Auto Show at the end of last year, the 800V silicon carbide platform became standard for almost all booths. In a few years, the domestic price of electric vehicles equipped with 800V silicon carbide has rapidly dropped from over 300,000 to around 200,000. With sufficient production capacity to handle it, the cost reduction came to fruition.

At the Xiaomi car press conference, those at the helm of the three new forces looked mixed, but the silicon carbide manufacturers looked at the fixed figure of almost 100,000 and probably woke up laughing in their dreams.

Epilogue

In 1971, 23-year-old Spielberg stumbled upon a story in “Playboy” magazine. After leaving a comment saying “That was the only time I read “Playboy” and didn't pay attention to the image above [8], Spielberg adapted it into a movie, that is, his debut film “Duel (Duel).”

The plot of the movie can be summed up as “a disaster caused by road rage”: a small car and a big truck overtake each other on an interstate highway, which eventually evolved into a duel that left each other dead. The film won an Emmy Award for Best Sound Editing, and Spielberg was given the chance to direct “Jaws” as a result.

The plot of “Duel” was so simple that it was even a bit monotonous, but during the 90-minute film, the huge truck followed the shape, and the roar of the engine filled the ears, constantly stirring up the tension of the audience.

Including silicon carbide, many industries in China are a bit like the truck in “Duel”. It looks rusty and has traces of splicing and imitation. Every part is a bit in disrepair, and the whole car is heavy and slow, which is somewhat out of place.

But it runs fast, so it's best not to let it seize the opportunity to catch up.

Reference materials

[1] Silicon carbide: before cutting costs for electric vehicles, cut costs for yourself and decode Decode

[2] For Longer-Range EVs, a Cousin of Silicon Makes a Material Difference, the Wall Street Journal

[3] Understanding the future needs of silicon carbide SiC devices, power electronics technology, and new energy from the tesla Tesla Model 3 dismantling

[4] 2024 “Next Generation Power Devices & Related Market Status and Prospects” Report, Japan Fuji Keizai

[5] SiC substrates continue to break through the “ceiling”, and the number of 8-inch fabs worldwide will reach 11, Trendforce Consulting

[6] God Makers Overthrow Statues: The Rise of Silicon Carbide and the Collapse of Houses, Toikawa Technology Review

[7] With car companies intensively promoting new assists, can SiC break through the profit barrier? Collection of micronetworks

[8] Spielberg's debut film, more interesting than his other movies, Iris

[9] IGBT refers to the global market, vigorously expanding production to ensure the supply of new energy sources, Minsheng Securities

[10] Wolfspeed Analysis Report: Global SiC Substrate Leader, New Energy Vehicles Drive Mid-Term Growth, CITIC Securities

[11] Silicon carbide usage of Xiaomi SU7, semiconductor industry network

Editor/Somer