A recent wave of disappointing earnings reports from lesser-known chip companies and a battery maker has fueled growing concerns among investors regarding the slowdown in electric-vehicle (EV) and overall auto sales. This downward trend is expected to continue into the next year, adding to the unease in the market.
On Monday, On Semiconductor Corp. (ON) and Lattice Semiconductor Inc. (LSCC), both manufacturers of industrial chips for the auto industry, released their earnings reports and failed to meet Wall Street's expectations. The forecasts provided by these companies further dampened investor sentiments.
Should inflation persist along with high interest rates in the upcoming year, as many experts predict, the decline in auto sales will likely persist. According to David Williams, an analyst at Benchmark, this downturn may continue well into the first half of next year. He believes that most cycles last between six to nine months. Furthermore, Williams suggests that reduced consumer purchasing power and the overall macroeconomic climate will continue to keep potential buyers on the sidelines for several quarters to come.
On Semiconductor revealed that due to an order shortfall from an undisclosed automotive customer in Europe, the company now predicts a $200 million decrease in shipments of its silicon carbide chips for EVs this year. However, it is important to note that despite this setback, On Semi's projected revenue for 2023 is expected to exceed $800 million, four times higher than that of 2022. In fact, last year, the company had expressed high hopes for its silicon carbide chips, forecasting sales of over $1 billion by 2023.
Semiconductor Companies and the Uncertain Future of EVs
EVs, or electric vehicles, have been hailed as the future of transportation. However, recent developments in the semiconductor industry have raised concerns about the growth of this promising market. Hassane El-Khoury, the Chief Executive of On Semiconductor, acknowledged that while EVs will continue to grow, their growth in the fourth quarter may not meet expectations. Despite this, El-Khoury remains optimistic about the long-term potential of EVs, emphasizing that customer designs have not slowed down.
Unfortunately, investors were spooked by these tempered expectations, leading to a significant decrease in On's shares by nearly 22%. Lattice Semiconductor, another player in the industry, also disappointed Wall Street with its fourth-quarter outlook. The company saw a decline in demand from industrial and automotive customers, particularly in the Asia region. As a result, Lattice's shares tumbled 13% in extended trading.
Even Tesla Inc.'s battery partner, Panasonic Holdings of Japan, announced a drastic 60% reduction in production due to sluggish sales of certain models sold to Tesla. This development contributed to a 4.8% drop in Tesla's stock, which closed at its lowest point since late May. The nervousness surrounding the EV market was further compounded by Ford executives stating that consumers were currently reluctant to pay a premium for EVs.
Semiconductor companies often serve as leading indicators of future end-product demand across various industries. With automakers now heavily relying on semiconductors, they can provide valuable insights into auto demand, particularly in the growing field of EVs. Unfortunately, these indicators paint a bleak picture in the short term.
In conclusion, while the semiconductor industry grapples with challenges affecting the growth of EVs, there is still an underlying belief in their long-term potential. These setbacks in the market highlight the need for ongoing innovation and adaptation as the world transitions to a more sustainable future of transportation.