Model Y cars are pictured during the opening ceremony of the new Tesla Gigafactory for electric cars in Gruenheide, Germany, on March 22, 2022.

Patrick Pleu | Pool | via Reuters

Shares in some chipmakers fell on Thursday after electric vehicle maker Tesla said it plans to sharply reduce the use of silicon carbide transistors in next-generation vehicle powertrains.

On Tesla’s 2023 Investor Day presentation on Wednesday, which focused largely on efficiency and controlling costs, leaders of the powertrain Colin Campbell took the stage to show how the company plans to reduce the cost of its cars’ powertrains, while maintaining high performance and energy efficiency.

Campbell revealed that “In our next powertrain, the silicon carbide transistors that I mentioned, which are key component(s) but expensive, we came up with a way to use 75% less without compromising the car’s performance or efficiency.”

Shares of ON Semiconductor and ST Microelectronics each lost about 2%, while Wolfspeed fell about 7% as investors worried that Tesla’s move would be a harbinger for the auto industry.

Campbell also said that Tesla’s new powertrains will have motors built without any rare earth metals. raw material supplier, MP Materialsknown for supplying automakers with neodymium, fell about 11% in response.

Campbell did not say when the company’s next-generation powertrain would be ready for high-volume production and use in the company’s vehicles, nor did he specify how much it is currently spending on those transistors. Executives at the event did not reveal concrete details about the “next generation” Tesla, which some analysts are calling the Model 2.

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Chips made from silicon carbide transistors are often used in electric vehicles. Generally speaking, they can withstand more heat, have longer lifetimes and are more energy efficient than semiconductors made with silicon power transistors, according to the Institute of Electrical and Electronic Engineers.

Bank of America analysts called Tesla’s claims “remarkable but premature.”

However, the analysts acknowledged, “If true, this technological advance could pose a major risk to the SiC materials industry (WOLF, COHR, Rohm) and devices (ON and European peers STMicro, Infineon – covered by Didier Scemama).”

They added the possibility that “cheaper (silicon carbide chips) could drive EV adoption globally so what suppliers lose in content could be partially offset by higher EV volumes.”

New Street Research analysts generally agreed, writing in a note Thursday that the Tesla announcement is actually a good thing for chipmakers as they expect demand to remain strong in and outside of the electric car industry.

They wrote of Tesla’s announcement: “The inverter in the new powertrain will use a hybrid architecture,” mixing silicon and silicon carbide transistors, with both types of transistors working together to handle peak loads in a Tesla vehicle, primarily during vehicle acceleration. “This hybrid architecture is only intended for the new platform, i.e. a low-cost, small car with lower performance, and will not be used for existing models (S, X, 3, Y) or the Cybertruck.”

New Street doesn’t expect a cheaper, next-generation Tesla vehicle to “ramp in volumes before 2025 or 2026.”

Wells Fargo analysts maintain an overweight rating on shares of both Wolfspeed and OnSemi with a price target for Wolfspeed of $110 and a price target for OnSemi of $95.

Citing Yole Group in a note Thursday, Wells Fargo analysts said that in the near term, the silicon carbide chip supply chain will remain tight due to strong demand from automakers across the board. Any growing EV maker will try to scale up while controlling costs, but in the short term they will be more concerned with securing the supply of silicon carbide chips for their new models, many of which will be launched this year and next, they said.

Michael Bloom contributed to this report.

Clarification: This post has been updated to clarify that MP Materials is a raw material supplier.

Tesla shares fall more than 5% after close as Investor Day fails to provide details