Wolfspeed's Financial Woes Deepen as EV Demand Slump and Debt Pressure Mount

Wolfspeed (NYSE: WOLF), a leader in silicon carbide (SiC) semiconductors critical for electric vehicles (EVs), has seen its shares plummet 28% in early May 2025 following a grim Q1 2025 earnings report that raised "substantial doubt" about its ability to continue as a going concern. The warning, combined with slowing EV sales and intensifying competition from Chinese rivals, has pushed the company’s stock to near-record lows, down 86% over the past year. Investors are now questioning whether Wolfspeed can survive its financial and operational challenges, or if it’s headed toward bankruptcy.

The Financial Crisis Unfolds

Wolfspeed reported a net loss of $372.2 million for the quarter, with revenue of $807.2 million, far below expectations. Its debt-to-equity ratio of 17.27—among the highest in the industry—has left it struggling to refinance loans, while free cash flow turned negative at -$195.1 million. Analysts at JPMorgan and Citi have downgraded the stock to “Underweight” and “Sell,” respectively, citing deteriorating margins and a lack of clarity on debt restructuring.

The company’s leadership shakeup adds to concerns: CFO Neill Reynolds is departing on May 30, 2025, amid talks with lenders to renegotiate its $2.8 billion debt pile. Wolfspeed has even hinted at pursuing in-court restructuring, a stark acknowledgment of its dire straits.

EV Demand: A Double-Edged Sword

Wolfspeed’s revenue is heavily tied to the EV market, where it supplies SiC chips that boost battery efficiency. While its EV-related revenue grew 92% year-on-year in Q1 2025, this growth is overshadowed by broader industry slowdowns. Key customers like General Motors and Mercedes-Benz have cut profit forecasts and withdrawn guidance, citing economic uncertainty and tariff-related costs.

The problem? Slowing EV adoption in key markets. Despite strong design wins—Wolfspeed claims $30 billion in cumulative EV contracts—the company’s overall revenue fell 7% sequentially to $180.5 million in Q1 2025, driven by declines in industrial and energy markets.

The Chinese Competitor Threat

Wolfspeed’s margins are under siege from cheaper SiC wafers produced by Chinese firms like Sicc Co and EpiWorld International. These competitors, often backed by state subsidies, are undercutting Wolfspeed’s pricing, squeezing its gross margin to a negative 6.3%. Analysts at Mizuho warn that China’s rapid expansion of semiconductor capacity could lead to a global oversupply, further pressuring Wolfspeed’s profitability.

Regulatory and Political Crosscurrents

Wolfspeed’s survival may hinge on a $600 million tax refund under the Biden-era CHIPS and Science Act, expected in fiscal 2026. But this lifeline is now uncertain: the Trump administration has pushed to repeal the law’s federal funding for domestic chip manufacturing. Without this subsidy, Wolfspeed’s cash reserves—already dwindling to $1.4 billion—would face even greater strain.

Restructuring and Hope

In a last-ditch effort, Wolfspeed is slashing costs: it plans to reduce its senior leadership by 30% and close its older Durham manufacturing facility by mid-2025 to focus on its advanced 200mm wafer plant in New York. Management aims to lower its breakeven revenue to under $1 billion annually and achieve positive free cash flow by 2026.

However, skeptics argue these moves are insufficient. The company’s quick ratio of 2.2, while suggesting short-term liquidity, offers little comfort given its long-term debt overhang and reliance on an uncertain tax refund.

Conclusion: A High-Risk Gamble

Wolfspeed’s future is a high-stakes bet on three variables:
1. EV demand recovery: The company needs automakers like GM and Mercedes to rebound, but their recent caution suggests this could take years.
2. Debt restructuring success: Wolfspeed must renegotiate loans without triggering default—a feat that could require a federal subsidy lifeline.
3. Competitive differentiation: Its 200mm wafer technology offers a technical edge, but execution risks remain high.

With shares trading at $3.17—a fraction of their 2021 peak—and analysts projecting further declines, investors are pricing in a high probability of bankruptcy. Unless Wolfspeed secures CHIPS Act funds, stabilizes EV demand, and outmaneuvers Chinese rivals, its “going-concern” warning may soon become a grim reality.

In the semiconductor race, Wolfspeed is now a contender clinging to the track—its fate hanging on a precarious balance of debt, demand, and geopolitical winds. For now, the odds are stacked against it.