Electric Vehicles

The $63.5 Billion Semiconductor Opportunity for 2022 and Beyond

The pandemic triggered an economic collapse that no country was immune to.

With quarantine measures in place for months, businesses went belly-up and unemployment skyrocketed.

Each of us was affected in one way or another. We saw the rise of the “stay-at-home economy” and an increased dependence on technology.

And not surprisingly, major purchases, such as a new car, saw sharp declines. In fact, the number of vehicles sold worldwide tumbled more than 14%!

Though that doesn’t accurately reflect how difficult 2020 was for auto manufacturers. The drop in car sales was even larger than it was during the global financial crisis from 2007 to 2009.

But here’s the deal… The dark days weren’t universal – far from it.

In fact, there was one segment of the automotive sector that boomed. It set new records, completely defying the devastation taking place everywhere else.

And this resilience demonstrates the true potential that this segment will have over the next several years.

How a Recession Led to Record Sales

You might think that I’m here to tell you about used cars. But I’m not… though those are enjoying a renaissance of their own.

I’m talking about electric vehicles (EVs).

Worldwide, EV sales jumped 41% to new records in 2020!

But that doesn’t even scratch the surface of how phenomenal that increase was.

For perspective, total automotive sales plummeted more than 14% in 2020. And through the first half of the year, global EV sales were 15% lower than they were in 2019. So this rebound in the second half was surprising to many people.

And possibly the most shocking outcome was Europe leapfrogging China to become the largest EV market in the world last year.

That’s thanks to a major government initiative.

The European Union kicked off 2020 with new emissions standards, limiting passenger cars to 95 grams of carbon dioxide per kilometer.

And here’s the deal: The EU began instituting carbon dioxide limits in 2008. Each time they’ve been tightened, EV sales have surged.

So, during the first half of 2020, when global EV sales were down 15% compared with 2019’s, EV sales in Europe were up 55%. And as quarantine measures were loosened, sales gained speed. By the end of the year, European EV sales had more than doubled.

That meant 1 out of every 10 cars on the road was an EV. And when 2021 came to a close, it increased to 1 out of 7.

This year, sales of EVs will ramp up even higher.

By 2030, EVs are expected to snag 27% of total new car sales. By then, we’re talking about a more than $1.3 trillion market.

But forget carmakers like Tesla (Nasdaq: TSLA), Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM). The real winner is more high-tech… and evolving.

A Changing of the Guard

The average car now houses 1,400 semiconductor chips.

They’re critical components of modern automobiles, controlling everything from airbags and windows to fuel injection and navigation. Our vehicles can’t run without them.

The automotive sector’s demand for chips is so robust that this market is projected to grow nearly 61% to $63.5 billion by 2025.

But there is a major change underway. And like most things regarding EVs, it’s triggered by Tesla.

For the past 50 years, silicon has dominated the semiconductor industry. Though the sands are shifting.

“Range anxiety” has long plagued the EV market.

Companies have been searching for ways to extend the ground that their vehicles can cover on a single charge. And part of this answer has been found in the composition of the semiconductors themselves.

Tesla became the first EV manufacturer to switch from silicon to silicon carbide (SiC) chips.

These are semiconductors made from silicon and carbon. They’re slightly more expensive but are more efficient as power converters – which is imperative for EVs. Using SiC chips reduces the charging times for EVs. And the range of an EV is extended by 5% to 10% because less power is lost from driving the motor.

Tesla CEO Elon Musk claims that SiC chips are his company’s key advantage.

But now Toyota Motor Corp. (NYSE: TM) is switching to these chips, and other companies are following suit. It’s projected that at least 30% of semiconductors for EVs will be made using SiC chips by 2025.

In fact, General Motors’ Ultium EV battery platform – the basis of all of its future EVs – is powered by SiC chips.

This is a booming opportunity for II-VI Inc. (Nasdaq: IIVI), Lam Research Corp. (Nasdaq: LRCX), Wolfspeed (NYSE: WOLF) and others.

Carmakers like Ford, General Motors, Tesla and Toyota will earn the headlines and fanfare. But regardless of the make and model, each vehicle will require more than 1,000 semiconductors to operate.

And the material that those chips are made of – especially for EVs – is changing.

Here’s to high returns,

Matthew

P.S. Semiconductor chips aren’t the only EV trend set to change in 2022. Sales of electric pickup trucks are expected to ramp up this year! To read more about this, click here.

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