In recent months, the silicon carbide (SiC) market has experienced significant shifts, with a notable decline in costs across various segments of the supply chainThis change is largely attributed to the rapid developments in China’s electric vehicle (EV) and photovoltaic industries, which have led to aggressive technological advancements and capacity expansionsThese efforts have culminated in a sharp price drop for SiC substrates, epitaxial wafers, and SiC modules, raising the question: how will these changes impact the overall SiC market, its stakeholders, and its future trajectory?
SiC has become a critical material in the modern semiconductor industry, particularly for its use in high-performance applications such as power electronics, electric vehicles, and renewable energy systemsSilicon carbide’s unique properties—such as its ability to withstand high temperatures and voltages—make it an ideal choice for these sectors
However, the recent price reductions, particularly in SiC substrates, have sent ripples through the industry, leaving manufacturers and investors with mixed feelingsFor example, reports suggest that prices for six-inch SiC substrates have plummeted by nearly 30% this year, with some projections indicating that they could fall below the $500 mark by mid-2024. This steep decline in pricing presents a challenge for manufacturers, many of whom are now struggling to maintain competitive production costs against Chinese companies, which have been able to scale up their production capacity at a remarkable rate.
The SiC supply chain is highly intricate, consisting of various components such as substrates, epitaxial devices, and application technologiesSubstrates and epitaxial materials alone make up around 70% of the total cost of SiC productionSubstrate production, in particular, accounts for nearly half of these expenses
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Consequently, any fluctuations in the prices of substrates or related materials can have profound effects on the cost structure and overall profitability of the SiC industryThis has led to growing concerns among manufacturers and suppliers who are now grappling with the consequences of price reductions across the entire supply chain.
Three major concerns have emerged as a result of these market shiftsFirst, with a substantial increase in global capacity for SiC crystal growth and substrate production expected in 2024, many industry professionals are fearing the possibility of an oversupplyIf the market is unable to absorb these additional supplies in a timely manner, companies may be forced to contend with excess inventory and fluctuating demandThis situation could lead to price instability and financial losses for those unable to adapt quickly enough to the changing market conditions.
Second, despite its critical role as the largest consumer of SiC materials, the electric vehicle sector has recently shown signs of slowing growth
After experiencing rapid expansion in previous years, the rate of growth in the EV market has begun to plateauThis raises important questions about the long-term sustainability of the sector’s reliance on SiC materialsWhile the demand for electric vehicles remains high, some experts wonder if new growth opportunities will arise to sustain the momentum in the SiC industryThe slowing pace of EV adoption may have a dampening effect on SiC demand, potentially undermining the business models of companies that have invested heavily in the sector.
The third, and perhaps most pressing concern, is the emergence of a price war in the silicon carbide marketThis price war has been sparked by the competitive dynamics within the industry, as companies scramble to maintain their market share and profitability amidst declining pricesThe competitive pressure is causing upheaval in the established pricing mechanisms, forcing companies to adjust their strategies in order to remain viable
As a result, the SiC industry finds itself in a period of intense flux, where traditional business models are being disrupted, and new approaches must be adopted to survive and thrive in an increasingly cutthroat market.
Given these challenges, many industry players are beginning to prepare for what could be an inevitable wave of mergers and acquisitionsCompanies are expanding their facilities to meet the growing demand for SiC materials, with reports indicating that 14 new eight-inch SiC facilities are set to open globally in 2024. In China, over 50 expansion projects have already begun, with total investments surpassing 90 billion RMBThese significant investments highlight the urgency with which companies are attempting to scale up their production capabilitiesHowever, as the market becomes more competitive and prices continue to drop, many smaller or less efficient players may struggle to survive
As a result, consolidation in the industry seems increasingly likely, as companies seek to strengthen their positions in an ever-evolving market.
Some analysts argue that the ability of suppliers to maintain profitability in a lower-price environment will be crucial in determining the long-term sustainability of the SiC marketWith price reductions putting pressure on margins, only the most efficient and innovative companies are likely to thriveThis creates an environment ripe for mergers, where firms may need to join forces to pool resources, optimize production, and achieve economies of scaleIn this way, the SiC market could experience a restructuring that realigns how companies operate and compete.
While some sectors of the SiC market may be facing challenges, others are experiencing new opportunities for growthThe expanding demand for artificial intelligence (AI) and data centers is one such avenue
As AI applications continue to proliferate, the need for high-capacity power solutions is growing rapidlySiC materials are particularly well-suited to meet the power demands of large-scale AI systems and data centers, given their ability to handle high voltages and improve efficiencyExecutives from leading semiconductor firms stress that as computational power requirements increase, SiC will play a crucial role in powering the next generation of AI-driven technologiesThis shift in demand could provide a much-needed boost to the SiC market, offering new avenues for growth outside of traditional sectors like electric vehicles.
As the SiC market continues to evolve, a gradual decrease in prices is expected, driven by the influx of new players and advancements in production technologyDespite the challenges posed by price wars and oversupply concerns, there is a silver liningThe increased availability of SiC components at lower prices will likely drive wider adoption of these materials across various industries, including automotive, renewable energy, and power electronics