On Wednesday, Wells Fargo adjusted its stance on Wolfspeed (NYSE:WOLF), moving its rating from Overweight to Equal Weight and significantly reducing the price target to $30 from $55. The firm cited potential challenges in the silicon carbide (SiC) market, particularly regarding the demand from electric vehicle (EV) applications which could impact the company's performance.
Wells Fargo's analysis suggests that Tesla (NASDAQ:TSLA), which drives approximately 55% of the SiC market demand, may experience a decline in volumes in 2024. Without a substantial increase in demand from other key players such as BYD (SZ:002594), Mercedes-Benz (OTC:MBGAF), Hyundai (OTC:HYMTF), or the industrial sector, the SiC demand may not meet the expected growth forecasts. Market research firm Yole Development has projected a 38% growth, while ON Semiconductor (NASDAQ:ON) anticipates a 25% increase.
The bank acknowledges that Wolfspeed's connection to Tesla is indirect, through the materials side of its business, and emphasizes that the concerns raised are not exclusive to Wolfspeed but extend to other companies in the SiC market. However, the particular focus on Wolfspeed is due to its one-third business share in the SiC merchant materials supply market, including the provision of bare and epitaxial wafers.
Wells Fargo highlighted Wolfspeed's unique position due to its exclusive exposure to the SiC market and its current lack of profitability, which were key factors in the decision to downgrade the stock. While the long-term outlook for SiC in EV applications remains positive, the near-term uncertainties have prompted a more cautious view on Wolfspeed's stock.
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