Wolfspeed to receive USD 750 million US chips grant for North Carolina plant

The US Commerce Department has announced that it was allocating USD 750 million in government grants to a leading manufacturer of silicon carbide chips — Wolfspeed — to aid in its new wafer manufacturing facility in North Carolina. The news caused a spike in Wolfspeed’s stock, which rallied more than 30 percent after the announcement.

As a condition for receiving the funding, the preliminary funding agreement requires that Wolfspeed has to take further steps to improve its balance sheet, to ensure taxpayer investments are protected. The company has also lined up USD 750 million in new financing from investment groups led by Apollo Global Management LLC, Baupost Group, Fidelity Management & Research Company Inc (FMR), and Capital Group.

Silicon carbide technology specialist Wolfspeed, with its chips used by big automotive customers like General Motors and Mercedes-Benz, are epitomised by the American's record breaking. Unlike silicon, silicon carbide has higher energy efficiency and is capable of transmitting power from the EV battery to the motor. According to the Commerce Department, the company's devices are also used in renewable energy systems, industrial applications, and artificial intelligence technologies.

To further expand beyond the SiC market, Wolfspeed announced that it is doubling production capacity at its Marcy, New York facility. Earlier, Newsom announced a USD 6 billion capacity expansion, and this project and the new North Carolina plant are a key part of that. Under the Chips and Science Act, which supports domestic semiconductor manufacturing, the company also expects to receive USD 1 billion in cash tax refunds through the '48D' advanced manufacturing tax credit.

Gregg Lowe, CEO of Wolfspeed, stressed in the statement that the grant was "a testament to the market leading quality of Wolfspeed products and the importance of Wolfspeed to broader US economic and national security interests."

Wolfspeed will need to restructure or refinance its outstanding convertible notes due in 2026, 2028 and 2029, and delay paying USD 120 million in cash interest payments to June 30. The company also plans to raise another USD 300 million in non-debt capital over the next year.

Wolfspeed still has its faith, however, despite a sharp decline in stock value this year (down nearly 75% year to date due to weak EV demand), and amid a mixture of cutbacks and consolidations by fellow semiconductor companies. The company’s plant due to open in Chatham County, North Carolina, in 2022 is to manufacture wafers for use in chip manufacturing, and is expected to deliver wafers by midsummer 2025. But even the USD 750m award from the USD 52.7bn semiconductor subsidy programme remains subject to due diligence and is not final.