Onsemi's Strategic Position in a Slowing EV Market: Assessing Long-Term Value Amid Structural Shifts

The global electric vehicle (EV) market is at a crossroads. While 2025 has seen robust growth—projected to reach 20 million EV sales worldwide—the U.S. market, a critical bellwether for global trends, has stumbled. Q2 2025 data revealed a 6.3% year-over-year decline in EV sales, marking only the third such drop in history. This slowdown, driven by maturing markets, phasing out of federal incentives, and economic uncertainty, has created headwinds for semiconductor suppliers like ON Semiconductor (ONsemi), whose fortunes are inextricably linked to the EV revolution. Yet, beneath the near-term noise lies a compelling story of strategic resilience and long-term value creation.

The EV Market: A Maturing Landscape

The U.S. EV market's Q2 decline underscores a broader reality: growth is no longer linear. While first-half 2025 sales hit a record 607,000 units, this 1.5% year-over-year increase masks structural shifts. Consumers are accelerating purchases to beat the likely phase-out of the Clean Vehicle Tax Credit in September 2025, creating a “buy now, worry later” dynamic. This volatility is compounded by tariffs on EVs, regulatory uncertainty, and a surge in new models—24 launched in 2024 alone—that are fragmenting market share.

For semiconductor suppliers like ONsemi, the EV slowdown is less about a collapse in demand and more about a recalibration. Automakers are still investing in electrification, but their priorities are shifting. Cost optimization, supply chain resilience, and differentiation through technology (e.g., AI-driven power systems) are now paramount. This creates both challenges and opportunities for chipmakers that can adapt.

ONsemi's Strategic Resilience: Powering the Future

ONsemi's Q2 2025 earnings report ($1.47 billion revenue, $0.53 EPS) highlights a company navigating these headwinds with discipline. Despite a 4% sequential drop in automotive revenue due to weakness in the Americas and Europe, China's EV market provided a lifeline. The company's 1,200-volt Elite SiC M3E chips, now embedded in electric SUVs, drove 23% sequential revenue growth in China—a critical market for its long-term trajectory.

The company's strategic pivot toward high-margin, high-impact technologies is its most compelling asset. By focusing on intelligent power and sensing, ONsemi is aligning with two megatrends: the electrification of vehicles and the rise of AI-driven data centers. Its investments in silicon carbide (SiC) and wide bandgap semiconductors are not just incremental—they are foundational to next-generation power architectures. For instance, collaborations with NVIDIA on AI data centers and Schaeffler on traction inverters position ONsemi as a key enabler of efficiency and performance in both EVs and computing.

Moreover, ONsemi is actively reshaping its portfolio. The Intelligent Sensing Group (ISG) is pivoting from low-margin human vision applications to high-value areas like ADAS and machine vision. This shift, while creating a 5% revenue headwind in 2026 due to legacy product exits, is designed to future-proof the business. The Trejo platform, a modular SoC-like design capable of integrating high- and low-voltage domains, is already gaining traction, with over 5 million units shipped in Q2.

Financial Fortitude: Balancing Growth and Shareholder Value

ONsemi's financials reflect a company with operational discipline and a clear capital allocation strategy. Free cash flow of $106 million in Q2 (19% of revenue) and capital expenditures of $78 million (5% of revenue) underscore its efficiency. Shareholders are also benefiting: $300 million in share repurchases in Q2 returned 107% of free cash flow year-to-date, with the company now targeting 100% of free cash flow for buybacks in 2025.

Critics may point to the 8.91% pre-market stock price drop following the earnings report, despite beating revenue expectations. However, this reaction likely reflects broader market jitters rather than ONsemi's fundamentals. The company's guidance for Q3 (revenue of $1.465–$1.565 billion) and its $0.54–$0.64 non-GAAP EPS range suggest confidence in navigating near-term volatility.

Navigating the Road Ahead: Risks and Opportunities

ONsemi's path forward is not without risks. The EV market's dependence on government incentives—particularly in the U.S.—remains a wildcard. If the Clean Vehicle Tax Credit expires as expected, automakers may delay investments in new technologies, indirectly affecting chip demand. Additionally, the company's exposure to China, while a growth driver, introduces geopolitical and regulatory risks.

However, these risks are mitigated by ONsemi's diversified end markets. Beyond EVs, its power solutions are critical for renewable energy systems and industrial automation. Its SiC technology, for example, is already being adopted in solar inverters and grid infrastructure, providing a buffer against automotive sector volatility.

Investment Thesis: A Semiconductor Story for the Long Term

For investors, ONsemi represents a blend of defensive and offensive qualities. Its focus on high-margin, mission-critical technologies positions it to benefit from secular trends in electrification and AI. The company's balance sheet strength and shareholder-friendly policies further enhance its appeal.

The near-term headwinds in the EV market should not obscure its long-term potential. As automakers and tech firms race to optimize energy efficiency and performance, ONsemi's silicon carbide and sensing innovations will be indispensable. The key for investors is to distinguish between cyclical noise and structural value—a task ONsemi has shown it can navigate with agility.

In a world where the EV market is maturing and semiconductors are becoming the new oil, ONsemi's strategic clarity and technical depth make it a compelling candidate for those seeking long-term growth in a structurally shifting landscape.