Tesla Analyst Explains Why EV Maker's Silicon-Carbide Cutdown Isn't Bad For Chipmakers

Tesla Inc TSLA on its Investor Day announced its intentions to cut down the use of silicon carbide transistors by 75% for their next powertrain. The move worried investors, sending shares of some chipmakers into a slump.

What Happened: Lead analyst at New Street Research, Pierre Ferragu, however, says this is a positive announcement for silicon carbide and not a negative.

In a Twitter thread posted on Thursday, Pierre explained that the pure Silicon Carbide inverter in Model 3 is worth about $500. Model 2, a lower-end vehicle in the works, will combine $125 of Silicon Carbide with IGBT mosfets to cut costs.

However, this hybrid architecture is only for low-end vehicles and is not applicable to Model 3 or above. For Model 3 and other high-end vehicles, 100% silicon carbide is economically viable and ensures higher performance and range, Ferragu said in a series of tweets.

See also: Everything You Need to Know About Tesla Stock

“The hybrid model expands the addressable market of silicon carbide, making it viable for the low end of the market. This is a positive for silicon carbide, not a negative!,” Ferragu tweeted.

Why Is This Important: After Tesla’s Vice President of Powertrain Engineering Colin Campbell said the company's next-gen drive unit will use 75% less silicon carbide, WolfSpeed WOLF stock tumbled.

Wolfspeed manufactures semiconductors made with silicon carbide and gallium nitride materials. Shares of chipmakers ON Semiconductor ON and ST Microelectronics also fell likewise.

Campbell added that the company's next powertrains will use a permanent magnet motor, devoid of rare metals. Rare metal producers like MP Materials MP also dived following the announcement.

Also Read: Why WolfSpeed Stock Is Tumbling — Is Tesla’s Executive’s Comment Behind The Plunge?