Wolfspeed (WOLF.US), a titan in the manufacturing of silicon carbide (SiC) chips that has suffered from a long-term slump in stock prices, saw its shares surge by more than 25% in pre-market trading on the US stock market after receiving financial aid totaling up to $1.5 billion from the US CHIPS Act and asset management firms such as Apollo Asset Management.

Wolfspeed, which focuses on producing innovative silicon carbide (SiC) and gallium nitride (GaN) chips, has its products widely used in industries such as electric vehicles, renewable energy systems, industrial equipment, and communications. However, the sluggish demand for electric vehicles under the Federal Reserve's interest rate hike cycle and a series of manufacturing system issues at Wolfspeed that affected chip production led to a continuous plummet in Wolfspeed's stock price since October 2022. This performance was out of step with the bull market in US stocks during the same period, with the stock consistently ranking at the bottom of the US chip sector, earning the title of "laggard" in the core force driving the long bull market of US stocks—the chip sector.

It is understood that the US Department of Commerce and Wolfspeed have signed a non-binding preliminary term memorandum (PMT) to provide financial support for the expansion of Wolfspeed's chip factory in North Carolina, USA, under the US CHIPS and Science Act.

According to the revised and reaffirmed contract between the two parties, the PMT includes Wolfspeed's obligations to raise a total of up to $750 million in debt financing through the issuance of preferred notes in three batches.

In addition, an investment fund consortium led by major US asset management firms such as Apollo Global Asset Management, Baupost Group, Fidelity Management & Research, and Capital Group has agreed to provide an additional $750 million in new financing support to Wolfspeed.

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Wolfspeed also hopes to receive up to $1 billion in cash tax rebates from the advanced manufacturing tax credit under the US CHIPS Act (Section 48D), bringing the company's total expected capital support to up to $2.5 billion, helping this electric vehicle silicon carbide chip giant in financial distress to get out of trouble.

According to media reports, these proposed funds are expected to be fully received after achieving some milestone achievements in the coming years, which will enable this electric vehicle chip company to complete its multi-billion-dollar greenfield capacity expansion plan in the United States, including the world's largest and most advanced manufacturing scale 200mm silicon carbide chip footprint.

The company said in a statement that this multi-billion-dollar investment will support Wolfspeed's balance sheet and drive significant growth through cash generation and acceleration of its long-term profit targets.

The substantial financial support provided by the US CHIPS Act aims to increase domestic semiconductor industry manufacturing and research processes in the United States, especially in the most advanced semiconductor manufacturing fields, including several semiconductor giants such as Intel (INTC.US), SK Hynix, Samsung Electronics, TSMC (TSM.US), Micron Technology (MU.US), and Texas Instruments (TXN.US) are receiving financial support under the act.

Why have the US government and large asset management institutions chosen to support the troubled Wolfspeed?Analysts have stated that following the latest Wolfspeed news updates, the core logic behind the U.S. government and consortiums such as Apollo providing liquidity support to Wolfspeed, which has been in operational difficulties for a long time, may lie in their collective optimism about the new track of silicon carbide (SiC) chips. Wolfspeed possesses ample talent, platform resources, and research and development investments in this field, continuously focusing on the manufacturing of SiC and gallium nitride (GaN) material chips for electric vehicles.

Silicon carbide (SiC) and gallium nitride (GaN) belong to the groundbreaking category of wide bandgap (WBG) semiconductor materials, with a larger bandgap width compared to traditional silicon. This allows them to operate in environments of high voltage, high frequency, and high temperature, while consuming significantly less energy than silicon-based devices. Specifically, the switching and conduction losses of SiC power devices in electric vehicles are markedly reduced, which is crucial in the inverter and motor drive systems of electric vehicles, as it effectively minimizes the energy wasted due to thermal losses during power conversion.

The high-temperature endurance of SiC and GaN materials also far exceeds that of ordinary silicon wafers, enabling stable operation at temperatures of 200°C or higher, whereas traditional silicon-based power devices typically operate around 150°C. Power electronic equipment in electric vehicles often generates a significant amount of heat under high-power conditions. Utilizing these wide bandgap materials can reduce reliance on cooling systems, simplify cooling designs, and enhance the reliability and durability of the system.

More importantly, due to the increased power conversion efficiency, the core chips of electric vehicles using SiC and GaN materials are more efficient in energy utilization, which directly translates into longer driving ranges for electric vehicles. By reducing energy loss, more electricity can be used to drive the electric motor, thereby extending the driving distance of electric vehicles after each charge.