ON Semiconductor (ON) Faces Sharp Decline as EV Weakness and Tariff Concerns Weigh on Outlook

ON Semiconductor is under significant selling pressure following its disappointing fourth-quarter results and bleak guidance for the first quarter of 2025.

The company, a leader in silicon carbide semiconductors—a critical component in electric vehicles—has been caught in the crosshairs of slowing EV demand, lingering supply chain disruptions, and increasing macroeconomic uncertainty.

The stock is down sharply today as investors react to weaker-than-expected earnings and a concerning demand environment across the automotive and industrial sectors.

Weaker EV Demand and Inventory Issues Continue to Pressure Results

ON Semiconductor had warned in the prior quarter that recovery in the automotive sector would be slow, with demand remaining soft due to ongoing inventory digestion. The industrial sector has faced similar challenges, with weakness persisting across traditional applications, except for a few bright spots in utility-scale solar, aerospace, and defense.

The challenges in these markets persisted into the fourth quarter, resulting in ON missing both revenue and earnings estimates. The company reported earnings of $0.95 per share on revenue of $1.72 billion, marking a year-over-year decline of 14.6 percent.

Management noted that demand deteriorated further late in the quarter, a trend that has continued into January, adding to concerns about the near-term outlook.

From a regional standpoint, revenue declined sequentially in all markets except North America, which remained flat. Japan experienced the steepest decline, reflecting weak manufacturing activity and an overall slowdown in industrial production.

The company’s industrial business saw a five percent sequential decline, mirroring global weakness in purchasing managers’ indexes and extended inventory corrections. The automotive segment showed some resilience, posting an eight percent sequential increase, driven largely by an 18 percent surge in demand from China.

However, this momentum is expected to fade in the first quarter, as the Chinese New Year holiday and extended factory shutdowns have dampened early-year deliveries.

Slow EV Ramp in the U.S. and Tariff Uncertainty Compound Challenges

One of the most concerning factors for ON Semiconductor’s outlook is the slower-than-expected ramp-up of EV production in the U.S. The company had anticipated stronger demand from major automakers, but weaker-than-expected global sales and consumer reluctance to transition from internal combustion engine vehicles have kept growth below expectations.

Compounding these concerns is the potential impact of new tariffs, which have introduced additional uncertainty into the supply chain. With customers hesitant to make long-term commitments amid shifting trade policies, ON faces another headwind that could weigh on its performance in the coming quarters.

Bleak First-Quarter Guidance Drives Further Selling Pressure

Given these headwinds, ON Semiconductor’s guidance for the first quarter of 2025 was particularly concerning. The company expects earnings per share to come in between $0.45 and $0.55, representing a staggering 54 percent year-over-year decline at the midpoint. Revenue is projected to fall between $1.35 billion and $1.45 billion, reflecting a 25 percent drop compared to the prior year.

This sharp deceleration in revenue and profitability is driven by weaker demand, particularly in EV-related applications, and a lack of visibility on when conditions will improve. While ON continues to expect secular growth in electrification, AI, and renewable energy over the long term, the near-term outlook remains highly uncertain.

Bright Spots in AI Data Centers and Defense Sectors

Amid the broader weakness, ON Semiconductor’s AI data center and defense businesses have been notable standouts. These segments grew by 40 percent and 50 percent year-over-year, respectively, in 2024, and management expects this strong momentum to continue in 2025.

The AI-driven surge in data center demand has provided a much-needed tailwind for semiconductor companies, and ON is well-positioned to benefit from this trend. Additionally, the defense sector remains a strong growth driver, supported by increased government spending and demand for advanced semiconductor solutions in military applications.

While these areas offer some resilience, they represent a relatively small portion of ON’s overall business. As a result, the company remains heavily reliant on a recovery in automotive and industrial markets to drive meaningful improvement in financial performance.

Long-Term Potential Remains Intact, but Timing of Recovery is Uncertain

Despite the near-term challenges, ON Semiconductor’s long-term growth potential remains compelling. The shift toward greater electrification in the automotive sector, combined with increasing demand for high-efficiency semiconductor solutions, supports the company’s positioning in the industry.

Silicon carbide technology remains critical for next-generation EVs, offering improved energy efficiency and extended range compared to traditional silicon-based semiconductors. As EV adoption accelerates globally and automakers ramp up production of new models, ON is well-positioned to benefit from the increased demand for its products.

However, the key variable is timing. With macroeconomic uncertainty, a sluggish EV transition, and potential trade disruptions creating short-term obstacles, investors may need to be patient before ON’s growth trajectory resumes. The stock’s recent decline reflects concerns over when the business will stabilize and whether additional headwinds will emerge in the coming months.

Conclusion: A Tough Road Ahead with Long-Term Potential

ON Semiconductor faces a challenging near-term environment, weighed down by weak demand in its core markets, inventory corrections, and ongoing trade policy uncertainties. While the company’s long-term growth drivers remain intact—particularly in EVs, AI data centers, and renewable energy—the near-term outlook is clouded by economic and industry-specific headwinds.

Investors will be closely watching for signs of stabilization in demand and improvements in ON’s key markets before turning more optimistic. While the long-term fundamentals remain solid, the current environment presents a difficult road ahead, making it a tough but potentially rewarding investment for those willing to endure near-term volatility.