San Jose, California – The semiconductor industry is facing challenges amid weaker electric vehicle sales, particularly at Tesla. The demand for semiconductors leveraged to silicon carbide power semiconductors is under pressure due to slowing auto demand and ongoing capacity expansions in China.

Shares of onsemi (NASDAQ: ON) have been impacted, with a decline of about 14%, contrasting the rise in the SOX index. However, other players like Infineon and STMicroelectronics have fared better. Despite concerns about a potential glut in the SiC market, onsemi’s fundamental improvements and focus on long-term value make it a compelling investment opportunity.

With modest expectations for the upcoming earnings report, onsemi has historically delivered modest revenue and margin beats. The company’s future guidance will be crucial, especially regarding the outlook for improving demand in the auto and industrial sectors.

Challenges lie ahead as Tesla’s market share weakens, while other automakers like Geely, Volkswagen, and BMW show signs of improvement. The industrial automation sector remains sluggish, with hopes for a recovery in the fourth quarter through inventory restocking.

The rapid increase in SiC wafer capacity, particularly in China, poses a risk of oversupply in the market. Despite forecasts of growth in SiC demand for auto, industrial, and energy applications, the industry faces the reality of potential market share conflicts among key players.

Onsemi’s management projects strong market growth driven by electrification trends in various sectors. While financial performance may have softened, the company remains optimistic about its long-term prospects in the power and sensor markets. Caution is advised given the uncertainties in the market and the need for sustained growth amid evolving industry dynamics.

Considering discounted cash flow and margin-driven approaches, onsemi shares are perceived as undervalued. Although risks of poor guidance, weak results, and market saturation persist, the company’s strategic positioning and management’s efforts signal resilience and future leadership in the industry. This presents an opportunity for investors to reconsider onsemi as a potential investment choice.