Defeated by Chinese competitors.
Author: I Liu Bo
Reported by: Investment界PEdaily
It is lamentable.
According to the Wall Street Journal, American silicon carbide wafer leader Wolfspeed is about to file for bankruptcy. Following the news, the company’s stock price plummeted 60% overnight on Wednesday, topping the list of declines in the US stock market.
Wolfspeed is a name well-known in the global semiconductor industry. Founded in the late 1980s, Wolfspeed is considered a pioneer in third-generation semiconductor silicon carbide, with a market value that once reached $16.5 billion (approximately 120 billion RMB) in 2021.
However, the rise of Chinese counterparts shattered Wolfspeed’s good fortune—Chinese silicon carbide companies, leveraging a mature manufacturing supply chain, have put Wolfspeed in a position of technological lag and high costs, ultimately leading to its market exit.
The downfall of Wolfspeed is, in some ways, a microcosm.
The Rise of the Global Silicon Carbide Pioneer
Market Value Once Reached 120 Billion
This was originally a startup myth with a strong Silicon Valley flavor.
We must go back to 1987, when five graduates from North Carolina State University and another young person founded the predecessor of Wolfspeed—Cree—in a restaurant near the university. At that time, they were in such a dire situation that co-founders Neal Hunter and Eric Hunter maxed out their credit cards and applied for a second mortgage to hire another founder, John Edmond, as their first employee.
The entrepreneurial motivation stemmed from their attempts during their school years to utilize the properties of silicon carbide materials to allow semiconductors to operate at higher temperatures and power levels, which led them to see the opportunity to produce blue LEDs using silicon carbide. In 1989, Cree launched the first silicon carbide-based blue LED and became the world’s largest manufacturer of blue LED chips in the 1990s.
Then in 1991, Cree introduced the world’s first commercial silicon carbide wafer, establishing its pioneering position in the silicon carbide field. Subsequently, Cree gradually formed three major business segments: LED (LED chips and components), lighting (LED lighting systems and fixtures), and Wolfspeed. Among them, Wolfspeed’s business includes silicon carbide materials, power devices, and RF devices.
However, as the lighting business began to decline in 2016, Cree sold its LED lighting and LED product businesses and decided to fully transition to third-generation semiconductors, acquiring Infineon’s RF power business in 2018. There was also an episode where Cree almost sold Wolfspeed to Infineon in 2016, but the deal was ultimately halted.
More importantly, Tesla released the Model 3 that year, which was the first to use silicon carbide MOSFETs from STMicroelectronics in its inverters. From then on, silicon carbide was spotlighted in the new energy vehicle sector, and Cree, as a wafer supplier for STMicroelectronics, naturally seized this opportunity.
The turning point came in October 2021—Cree officially changed its name to Wolfspeed, fully transforming into a company focused on third-generation semiconductors. At the same time, Wolfspeed’s stock price hit a new high in November of the same year, soaring to $139, with a market value reaching $16.5 billion (approximately 120 billion RMB), gaining significant attention.
From the industry’s trend at that time, the demand for silicon carbide semiconductors in sectors such as new energy vehicles and photovoltaics indeed provided Wolfspeed with enormous growth potential. With its technological advantages and leading 8-inch SiC wafer production capacity, Wolfspeed quickly established itself as an industry leader.
However, unexpectedly, this name change marked the beginning of Wolfspeed’s decline.
Who Killed It?
The collapse of a building always starts from within.
In the eyes of Wolfspeed’s executives, the fiscal years 2021-2024 were seen as the most critical investment period, leading to a decision for aggressive capacity expansion. During this period, Wolfspeed continuously invested heavily, pouring at least tens of billions of dollars into building new factories in the US and Germany, including capacity construction for the Mohawk Valley 8-inch silicon carbide wafer factory and capacity expansion for the 6-inch silicon carbide wafer factory in Durham.
However, this “betting on the future” aggressive expansion strategy clearly overlooked the market development pace. The first to be affected was the slower-than-expected electrification progress in the European and American automotive markets, causing local automakers to delay their electric vehicle development goals, leading some OEMs to postpone orders for automotive-grade semiconductors.
Even Tesla, the “pioneer” of silicon carbide, announced in March 2023 that it would reduce its silicon carbide usage. This news was undoubtedly a thunderbolt for silicon carbide suppliers, including Wolfspeed, as the significant reduction in automotive orders led to a decrease in capacity utilization for silicon carbide manufacturers, which in turn raised costs, creating a vicious cycle.
The most typical case is Wolfspeed’s Mohawk Valley factory. As the flagship production line, this factory was built with over $5 billion, accounting for more than half of Wolfspeed’s capital expenditure, and was originally expected to drive the company’s revenue growth for several years. However, the grim reality is that this factory contributed only $78 million in revenue in the latest fiscal quarter. The capacity utilization rate is reportedly expected to reach only 25% by the end of 2024.
To date, Wolfspeed’s debt has reached approximately $6.5 billion, including $1.5 billion in senior secured loans held by Apollo Global Management, with annual interest expenses of about $800 million, but cash reserves are only $1.3 billion. Its stock price has fallen 33% since the beginning of the year, and in 2024 it plummeted by 85%. Now, each share is just over $1, with a market value that has become pitifully low.
Even more critically, the US CHIPS and Science Act remains unresolved and is likely to be repealed by the current government, which means that the $600 million cash tax rebate that Wolfspeed had hoped to receive may be lost, adding insult to injury in its current predicament.
As the saying goes, “When the wall falls, everyone pushes it.” On the eve of the collapse, well-known investment institutions had already begun to liquidate their positions. According to a regulatory filing, Jana Partners has exited all its positions in Wolfspeed. In the first quarter of this year, Jana Partners sold nearly 5 million shares of Wolfspeed stock; at the end of last year, it had reduced its holdings by about 19%.
Wolfspeed has not been without attempts to save itself. Over the past year, Wolfspeed has fired its former CEO, closed a factory, and reduced its workforce by 20%, focusing on the 200mm wafer route in an attempt to reverse its cash flow situation. But for now, all of this seems to be in vain. What awaits Wolfspeed may only be the final path to bankruptcy.
What has also contributed to Wolfspeed’s downfall is a force from the East.
Although Wolfspeed started early, the gap between Chinese companies and this silicon carbide pioneer is visibly narrowing. According to a TrendForce report, in the global silicon carbide substrate market in 2024, Wolfspeed still holds the top position with a 33.7% market share. However, impressively, Chinese companies TankeBlue and SICC have performed well, ranking second and third globally with market shares of 17.3% and 17.1%, respectively.
More critically, the 8-inch SiC substrates produced by Wolfspeed theoretically could reduce unit costs by 30%, but the long-standing issue of insufficient yield below 40% has not been resolved. Meanwhile, Chinese manufacturers have innovated processes to reduce the price of 6-inch substrates to 30% of the international level, directly breaching Wolfspeed’s cost bottom line. Thus, the internal and external pressures faced by Wolfspeed are evident.
In fact, this is a microcosm of the rise of China’s third-generation semiconductors. Tianyue Advanced, which went public on the STAR Market in 2022, is one of the few companies capable of mass-producing 8-inch silicon carbide substrates and was the first to commercialize the transition from 2-inch to 8-inch substrates, as well as the first to launch 12-inch silicon carbide substrates, with a latest market value exceeding 26 billion RMB.
In February of this year, the STMicroelectronics silicon carbide wafer factory officially began operations, established as a joint venture between Sanan Optoelectronics and STMicroelectronics in Chongqing. The project is expected to achieve mass production in the fourth quarter of 2025, becoming the first domestic 8-inch automotive-grade silicon carbide power chip mass production line.
In addition to these listed leaders, there is a group of silicon carbide unicorns waiting to emerge.
In October 2024, Xinyue Energy announced the completion of approximately 1 billion RMB in Series A financing, led by the Guangdong Integrated Circuit Fund Phase II managed by Yuecai Fund and the National Investment and Entrepreneurship Fund, with participation from various investors.
Earlier, Tongguang Co., Ltd. announced the completion of 1.5 billion RMB in Series F financing, led by the Shenchuang Investment Fund for Manufacturing Transformation and Upgrading New Materials and the Beijing-Tianjin-Hebei Coordinated Development Industry Investment Fund, with joint investment from other companies.
As many investors have expressed in unison: the third-generation semiconductors carry our hopes for leapfrogging in the semiconductor industry.
China is transitioning from a “demographic dividend” to an “engineer dividend,” providing ample opportunities for the development of advanced manufacturing.
We are witnessing history.
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