The demand for new energy is rising, and domestic substitution is expected to break through

1. SiC silicon carbide: The golden age of industrialization has arrived; The substrate is the core of the industrial chain

1.1. SiC characteristics: The third-generation semiconductor star, with superior performance in high-voltage and high-power application scenarios

Semiconductor materials are electronic materials used to make semiconductor devices and integrated circuits. The core is divided into the following three generations:

1) First generation elemental semiconductor materials: silicon (Si) and germanium (Ge); As the most commonly used material in semiconductors, it originated in the 1950s and laid the foundation for the microelectronics industry.

2) Second generation compound semiconductor materials: gallium arsenide (GaAs), indium phosphide (InP), etc; It is the material used for most communication devices in the 4G era, originating in the 1990s and laying the foundation for the information industry.

3) The third-generation wide bandgap materials include silicon carbide (SiC), gallium nitride (GaN), aluminum nitride (ALN), gallium oxide (Ga2O3), etc. In the past decade, countries around the world have successively laid out and industrialized rapidly.

Among them, silicon carbide (SiC) is the core of the third-generation semiconductor material. The core is used for power+RF devices, suitable for high-voltage scenarios above 600V, including photovoltaic, wind power, rail transit, new energy vehicles, charging stations and other power electronics fields.

SiC silicon carbide is one of the ideal materials for producing high-temperature, high-frequency, high-power, and high-voltage devices: a compound semiconductor material composed of carbon and silicon elements. Compared to traditional silicon materials (Si), the bandgap width of silicon carbide (SiC) is three times that of silicon; The thermal conductivity is 4-5 times that of silicon; The breakdown voltage is 8-10 times that of silicon; The electron saturation drift rate is 2-3 times that of silicon. The core advantages are reflected in:

1) High voltage resistance characteristics: lower impedance, wider bandgap, able to withstand larger currents and voltages, resulting in smaller product designs and higher efficiency;

2) High frequency resistance: SiC devices do not exhibit current tailing during the shutdown process, which can effectively improve the switching speed of the components (about 3-10 times that of Si), suitable for higher frequencies and faster switching speeds;

3) High temperature resistance: SiC has a higher thermal conductivity compared to silicon and can operate at higher temperatures.

Compared with silicon-based MOSFETs, silicon carbide based MOSFETs with the same specifications can significantly reduce their size to 1/10 of the original, and their on resistance can be reduced to at least 1/100 of the original. The total energy loss of silicon carbide based MOSFETs with the same specifications can be greatly reduced by 70% compared to silicon based IGBTs.

Silicon carbide power devices have unique advantages such as high voltage, high current, high temperature, high frequency, and low loss, which will greatly improve the energy conversion efficiency of existing silicon-based power devices. In the future, their main application areas will include electric vehicles/charging piles, photovoltaic new energy, rail transit, smart grids, etc.

1.2. Development Trend: Benefiting from the Outbreak of New Energy Vehicles, the Golden Age of SiC Industrialization Will Come

Market space: According to Yole's statistics, the market size of SiC silicon carbide power devices was approximately 710 million US dollars in 2020, and it is expected to grow to 4.5 billion US dollars in 2026, with a CAGR of nearly 36% from 2020 to 2026. Among them, new energy vehicles are the most important downstream application market for SiC power devices, and demand is expected to rapidly explode starting in 2023.

New energy vehicles are the main growth driver of the silicon carbide power device market. SiC power devices are mainly used in core electronic control fields such as new energy vehicle inverters, DC/DC converters, motor drivers, and on-board chargers (OBCs) to achieve more efficient energy conversion than Si. It is expected that with the rapid outbreak of demand for new energy vehicles and the maturity of SiC substrate technology, the industrialization process is expected to accelerate, leading to cost reduction and efficiency improvement in the industrial chain.

1) Application side: Solve the pain points of electric vehicle endurance. According to Wolfspeed's calculations, changing the power components in pure electric vehicle inverters to SiC can significantly reduce the volume, weight, and cost of power electronic systems, and improve the vehicle's range by 5% -10%. According to Infineon's calculations, the overall loss of SiC devices is reduced by more than 80% compared to Si based devices, and the conduction and switching losses are reduced, which helps to increase the range of electric vehicles.

2) Cost side: A bicycle can save $400-800 in battery costs, which can be offset by the addition of $200 in SiC device costs, resulting in a reduction of at least $200-600 in bicycle costs.

3) Client: Tesla and other automotive companies have successively laid out. Model 3 is the first model in the industry to use SiC inverters, pioneering the use of SiC in electric vehicles. There are a total of 48 SiC MOSFET wafers per vehicle, provided by STMicroelectronics and Infineon. Other car companies, including BYD (278.560, 9.57, 3.56%) Han and Toyota Mirai, have also started using SiC inverters.

At present, major automotive companies have been laying out in the field of silicon carbide, and cost is the key factor determining when SiC will be widely used in new energy vehicles.

1) In 2017, Tesla Model 3 became the first vehicle to use SiC inverters, with a total inverter weight reduced to 4.8kg (approximately 84% less than before) and a 6% increase in endurance (the efficiency of the inverter and permanent magnet motor combination was as high as 97%, compared to 82% before)

2) It is expected that high-end SUVs and sedans with a range of over 500 kilometers will be equipped with SiC power devices in the future. Small SUVs and mid size sedans may begin to use a portion of SiC after 2024-2025 (with the large-scale release of SiC substrate production capacity and cost reduction), while low-end cars may follow suit.

1.3. SiC Industry Chain: The substrate is the highest technological barrier link, with a value accounting for 46%

The SiC industry chain includes upstream substrate and epitaxial links, midstream device and module manufacturing links, and downstream application links. The manufacturing of substrates is the highest technological barrier and the most valuable link in the industrial chain, and is the core of the future large-scale industrialization of SiC.

1) Substrate: Value accounts for 46%, which is the most core link. The substrate is formed by SiC powder through crystallization, processing, cutting, grinding, polishing, and cleaning processes. The growth of SiC crystals is the core process, and the core difficulty lies in improving yield. The types can be divided into conductive and semi insulating substrates, which are respectively used in the fields of power and RF devices.

2) Extension: Value accounts for 23%. The essence is to cover a thin film on top of the substrate to meet the conditions for device production. Specifically, it can be divided into: conductive SiC substrates used for SiC epitaxy, and then power devices produced for use in electric vehicles and new energy fields. A semi insulating SiC substrate is used for gallium nitride epitaxy, which in turn produces RF devices for 5G communication and other fields.

3) Device manufacturing: Value accounting for approximately 20% (including design+manufacturing+packaging). The products include SiC diodes, SiC MOSFETs, all SiC modules (composed of SiC diodes and SiC MOSFETs), and SiC hybrid modules (composed of SiC diodes and SiC IGBTs).

4) Application: Semi insulating silicon carbide devices are mainly used in 5G communication, vehicle communication, national defense applications, data transmission, and aerospace. Conductive silicon carbide devices are mainly used in infrastructure construction such as electric vehicles, photovoltaic power generation, rail transit, data centers, and charging. (Report source: Future Think Tank)

2. SiC substrate: New energy vehicles bring billions of market space; Domestic substitution is possible

2.1. Market space: New energy vehicles bring a billion dollar market space; The application prospects of photovoltaic inverters are promising

In 2021, Tesla's global sales reached 936000 vehicles, mainly contributing to the Model 3/Model Y. It is expected that Tesla's Model 3/Model Y annual production capacity will reach 2 million vehicles in the next 2 years (including 1 million vehicles in the US factory, 500000 vehicles in the Chinese factory, and 500000 vehicles in the Berlin factory in Germany). Assuming a production capacity of 1.5 million Model 3/Model Y vehicles in 2022 and a consumption of 0.25 6-inch SiC wafers per vehicle, it corresponds to a consumption of 375000 6-inch SiC wafers per year. Currently, the global total SiC wafer production capacity is approximately 500000 to 600000 wafers per year, and the supply side production capacity is tight.

Meanwhile, currently the Tesla Model 3's SiC MOSFETs are only used on the main drive inverter power module, with a total of 48 SiC MOSFETs, corresponding to a single vehicle consumption of approximately 0.25 6-inch SiC substrates. If extended to include OBC, DC/DC converters, high-voltage auxiliary drive controllers, main drive controllers, chargers, etc. in the future, the usage of single car SiC devices will reach 100-150, and market demand will further expand (single car consumption is expected to reach 0.5 6-inch SiC substrates).

The demand for new energy vehicles is rapidly exploding, SiC production capacity is tight, and global capacity expansion is expected to accelerate. According to DIGITIMES Research, global electric vehicle sales are expected to reach 6.31 million units (accounting for approximately 6% of total sales) in 2021, a year-on-year increase of 101%. We estimate the market space for SiC silicon carbide, assuming:

1) The global passenger car sales are expected to reach 64.6 million units in 2021, with a penetration rate of about 10% for new energy vehicles; Assuming that global passenger car sales maintain a stable growth of 2% from 2022 to 2025, the penetration rate of new energy vehicles in 2025 is about 28%;

2) Assuming that the penetration rate of SiC in new energy vehicle applications has increased from 18% in 2021 (calculated by Tesla Model 3/Y) to 60% in 2025;

3) Assuming that during the period of 2021-2023, a single vehicle consumes 0.25 6-inch SiC wafers, and as the new energy application market gradually opens up, the single vehicle consumption will increase to 0.5 6-inch SiC wafers by 2024-2025; The selling price of a single chip decreases by 10% annually;

In summary, the demand for 6-inch SiC substrates in the new energy vehicle market in 2025 will reach 5.87 million pieces per year, with a market space of 23.1 billion yuan. If SiC devices are more widely used in charging piles, photovoltaic inverters, 5G communication, rail transit and other fields in the future, the market space is expected to further expand.

In photovoltaic power generation applications, traditional inverters based on silicon-based devices account for about 10% of the system's cost and are one of the main sources of system energy loss. As the photovoltaic industry enters the era of "large components, large inverters, large-span brackets, and large series", the voltage level of photovoltaic power stations has been raised from 1000V to above 1500V, and silicon carbide power devices must be used.

According to the China Automotive Industry Information Network, photovoltaic inverters using silicon carbide MOSFETs or power modules combined with silicon carbide MOSFETs and silicon carbide SBDs can increase conversion efficiency from 96% to over 99%, reduce energy loss by more than 50%, and increase equipment cycle life by 50 times. This can reduce system volume, increase power density, extend device service life, and reduce production costs.

According to CASA Research data, the proportion of silicon carbide power devices used in photovoltaic inverters was 10% in 2020. It is expected that the proportion of silicon carbide photovoltaic inverters will reach 50% by 2025 and 85% by 2048.

The demand for photovoltaic installation in the next ten years (2020-2030) is 10 times larger than the track. We expect that China's new photovoltaic installation demand will reach 416-537GW by 2030, with a CAGR of 24% -26%; The global demand for new installed capacity reached 1246-1491GW, with a CAGR of 25% -27%. Having huge market space.

We calculate the market space of silicon carbide substrates in the field of photovoltaic inverters.

1) Photovoltaic inverter demand: Assuming that the new demand is synchronized with the global new installed capacity, the stock demand comes from the corresponding new installed capacity 10 years ago (the average replacement cycle of inverters is about 10 years).

2) IGBT demand for photovoltaic inverters: Assuming that the selling price and gross profit margin of photovoltaic inverters steadily decrease every year, the cost of IGBT devices accounts for about 16%.

3) Market space for silicon carbide MOS devices in photovoltaic inverters: Assuming that the penetration rate of silicon carbide increases from 10% to 50%, the cost-effectiveness of silicon carbide MOS continues to improve, and the cost decreases year by year (currently averaging around 4 times).

4) Market space for silicon carbide substrates: With the continuous optimization of substrate costs, it is assumed that the proportion of costs in devices is decreasing year by year.

In summary, it is expected that the market space for silicon carbide substrates will increase from 800 million yuan to 3 billion yuan from 2021 to 2025, with a CAGR of 39%.

In summary, it is expected that the market space for silicon carbide substrates in the field of new energy vehicles and photovoltaic inverters will reach 26.1 billion yuan by 2025. The industry has a significant supply-demand gap, and the demand for capacity expansion is imperative. According to CASA Research, six international giants announced 12 production expansions in 2019, mainly aimed at expanding substrate capacity. The largest project was the nearly $1 billion expansion plan invested by Corus to build new 8-inch power and RF substrate manufacturing factories in North Carolina and New York that meet automotive grade standards.

2.2. Competitive landscape: The gap between domestic and international markets is gradually narrowing, and domestic substitution is possible

The competitive landscape of SiC substrate suppliers: overseas leading monopolies, achieving large-scale supply of 6 inches, and advancing towards 8 inches. Domestic manufacturers mainly focus on small sizes and are advancing towards 6 inches.

Conductive SiC substrate (mainly used in new energy vehicles, photovoltaics, and other fields)

1) Global market: Wolfspeed, an American company, holds over 60% of the market share and basically controls the international market price and quality standards of silicon carbide single crystals. Other companies include: II-VI from the United States, SiCrystal AG from Germany, Dow Corning, Nippon Steel from Japan, etc. The mainstream products have completed the transformation from 4 inches to 6 inches.

2) Domestic companies: Overall, they are in the early stages of development, mainly focusing on 4-inch small-sized production capacity. In 2018, Tianke Heda ranked sixth globally and first domestically with a market share of 1.7%. Other companies include Shandong Tianyue and Hebei