SGL Carbon SE (SGL) Earnings Call Transcript & Summary

Yes, very warm welcome from SGL side to our first SGL insights about the topic, the Future is SiC. Today, we want to give you more information about the silicon carbide-based semiconductor market, our role in this market and our expectations. Our management Torsten Derr and Thomas Dippold as well as our specialist for this topic Niels Nielsen, our Head of Application and Technology will share with you our view on the market. Furthermore, my colleague, [indiscernible] as producer of our production video will also attend the call. But let's start. I hand over to Torsten Derr, our CEO.

Yes, Claudia. Thank you very much. Thank you very much also to the audience that you dialed in, in our call. And I have the honor to present our business model to you. Next slide, please. Here, you can see the key figures of SGL Carbon. And SGL Carbon is a manufacturer of graphite and carbon fiber. We are based in Germany. We are headquartered in Wiesbaden, which is close to Frankfurt but have a truly global setup with production site in the U.S., in China and Japan and so on. And totally, we operate 29 sites. Our turnover is roughly EUR 1.1 billion. In 2022, we made EUR 173 million EBITDA and we employ roughly 4,700 people. Here you can see how we are structured. SGL Carbon is split into 4 different business units and all business units have full P&L responsibility. All the sites, which we operate are either -- are allocated to 1 of the 4 business units, which you can see here. And our talk today will focus on the first business unit, which we call Graphite Solutions. This is -- here's our graphite business cluster and Graphite Solutions makes roughly 50% of the turnover of our company and also EUR 118 million EBITDApre of the EUR 170 million. So by far, the largest and most profitable business unit. The other business units are process technology, equipment for chemical industry, our carbon fiber unit where we sell carbon fibers to automotive and to the wind energy and composite solutions, which uses the carbon fiber and also glass fibers and produces automotive parts like a Tier 1 supply. We tried to focus in the last 2 years on fast-growing markets and also on markets with sustainable applications. And we are very strong in electromobility. For example, we produce battery cases which are fireproof in case of battery fires. We produce glass fiber and carbon fiber leaf springs, which are lightweight applications, carbon brakes discs. This goes all into electromobility. We are strong in renewables, which is, for example, graphite for the crystal growth in photovoltaics. We push our carbon fibers into wind energy, and we are one of the largest producers worldwide for the gas diffusion layer, which is the main component of the fuel cells. Today, we are going to talk about semiconductors, and we have a lot of parts, which we show you later on for the silicon and silicon carbide industry. And we also serve other industries like aerospace, robotic industry and automation with our products. And with this, I would like to hand over to my colleague, Niels Nielsen.

Thank you, Torsten. Ladies and gentlemen. I will continue with a deep dive into the silicon carbide semiconductor market. Basically, the total semiconductor market is and will remain dominated by silicon semiconductors. So silicon is the workhorse of the semiconductor industry and is the basis for all digitization efforts. So the silicon market today and for the future, will have a pretty mature robust growth rate on the order of 5% with a certain volatility in it. By 2027, we expect the silicon market to arrive at about USD 800 billion. Compared to silicon, silicon carbide is a relatively new semiconductor technology. Based on the advantages of silicon carbide, it is specifically useful for use in electromobility. We foresee a very strong growth rate on the order of 34% for the coming years and the market will arrive by 2027 at about USD 6.5 billion with a lower volatility compared to silicon. Now what differentiates silicon carbide from silicon? Silicon carbide is a so-called wide band gap semiconductor. It is specifically useful and has advantages when operated at a high voltage, 800 volts or 1,200 volts and high power ratings. At the same time, it allows semiconductor devices to operate at higher frequencies. In combination, silicon carbide devices offer a better efficiency, a reduced power loss and they can be built lighter, smaller and require less cooling compared to a similar silicon device. Now this picture here illustrates one of the building blocks of an electric drivetrain, namely the so-called main inverter. The main inverter takes the energy from the battery pack and makes it accessible to the electric drive. Using a silicon carbide-based inverter allows you to shrink that device by weight and by size in a significant amount. Now there are more used cases for silicon carbide in electromobility. There's the main inverter, as you may see on the picture, directly sitting next to the electric motor and are connected to the traction battery. There are further components like auxiliary batteries to be loaded or air conditioning to be operated, and therefore, you need so-called DC-DC converters. Then every electric-driven car has an onboard charger in it that allows you to hook it up to a private wall box or an AC outlet. At the same time, thinking about millions to tens of millions of electric vehicles requires hundreds of thousands or even millions of DC fast charging stations. And also these fast-charging stations will benefit in efficiency from using silicon carbide over silicon power modules. Combining all the potential of silicon carbide chips allows you to go the extra mile with an electric vehicle with a certain battery size. So we assume that using a silicon carbide-based drivetrain, the extra range will be 10% or even more. And that extra range as a unique selling point more than pays off the extra cost of the silicon carbide chip compared to a silicon module, vice versa, shrinking the battery pack and the battery pack is and remains the most costly component in an electric drivetrain allows you to reduce the cost of a car, making it accessible to a lower price segment while keeping the drive distance. Further advantages are much faster charging, for instance, within 20 minutes from 20% to 80% charging rate or load. Then the system overall cost may be reduced by reducing the effort and the rate for additional cooling of the electronics and the CO2 footprint of the car measuring. The second very important use case for silicon carbide are the inverters used in photovoltaics. Here that we show a grid connected inverter, and that is the main building block, converting the direct current from the PV module and making it accessible either to the main grid or for operating home appliances in a house. Let's have a deeper look into the evolution of the silicon carbide semiconductor market. Based on the already mentioned 34% CAGR over the coming 4 years, the SiC market will roughly triple to about USD 6.5 billion by 2027. The main applications are clearly electromobility. It is dominating. Then there are the so-called industrial applications, for instance, electric drives used in industrial applications. These will, in the future, be the second strongest driver. And then distributed energy production, transport and storage, for instance, in photovoltaics. All of these growth segments have in common that they contribute to a lower CO2 emission and finally, climate protection. The starting point for building a silicon carbide chip is the silicon carbide wafer. And this slide here lists the handful of key players today in the market. There's Wolfspeed, Coherent, SiCrystal, SK Siltron, TankeBlue in China and others. And all of these companies listed here on the page have tremendous capacity expansion plans ahead of them in the coming years, either by a factor of 5 for Western and Japanese players or for the rather new Japanese entrants in even more aggressive factor of 10 capacity expansion in the coming years. And SGL provides graphite to almost all of the companies listed here on this page. Now SGL is a key supplier to the silicon carbide semiconductor industry, with a comprehensive product portfolio. Looking at, for instance, here, the value chain in the automotive segment, the products of SGL here shown on the lower left enter in the early stages of this value chain. It is specifically the silicon carbide crystal growth and wafer manufacturing, where the products of SGL are essential. There are also components from SGL used in semiconductor manufacturing, building the silicon carbide power chips from the silicon carbide wafers. And then automotive system integrators and OEMs take these SiC chips and include them, for instance, in the main inverter of the electric vehicle and the car manufacturers combine all of these components to the electric drivetrain. This picture here shows schematically how silicon carbide crystals are manufactured. Basically, the process temperature here for this so-called physical vapor transport process is on the order of 2,400 degrees Celsius. That means starting from the outside of the sketch here, we have an insulation pack. This comprises soft or rigid graphite felt. Then this will be followed by an isostatic graphite heater. And inside of that heater will be a silicon graphite -- sorry, an isostatic graphite crucible, which houses the actual physical vapor transport process. And in that process, the silicon carbide powder is sitting on the bottom of the crucible, here shown in blue. That material sublimates and evaporates through a layer of porous graphite and essentially builds silicon carbide crystal at the roof of that crucible. SGL provides all of the related graphite products that you can see here, and they are the key building blocks actually for the physical vapor transport furnace. The lifetime of the graphite is limited to a few runs. And such a run at best delivers silicon carbide crystal, which is about 6 centimeters thick and has at best a 200-millimeter diameter, and that is achieved after about 5 days of operation. Now let's have a deeper look how isostatic graphite crucibles are manufactured at SGL Carbon. [Presentation]

Production of a crucible and -- you have seen is the production of graphite crucible which is used in SiC production. And SGL is providing all parts which are present in the hot zone. We also produce isolation material, porous graphite, we produce the heater, which is pretty similar to the production of crucible. And why are the customers buying us? And Niels already said at almost all SiC producers are our customers. And I had a meeting several weeks ago with the CEO of one of the largest SiC manufacturers and asked him the question I'm always asking customers, why are you buying? And his answer was quite unexpected to me. I expected quality or precision or something. And he told me, it's your people and it's your experience. You are more than 10 years -- 10, 15 years in this market, and we simply trust you. Second argument was, you are running a one-stop shop. You can provide all the parts which we need in the hot zone of an SiC manufacturing oven. We have the isolation material, the crucible, the heaters, the porous graphite, and it's better to buy all the parts from one manufacturer than to mix it out of several. He said you are going the full value chain. You are customizing the products exactly to our needs. And you do it at a very, very high purity and purity is very important because if we have other atoms than a graphite in a crucible, they might corrupt the silicon carbide's ingot at the production stage. And he said, you are fulfilling it all, and this is why we preferably buy from you. So now I want to give you some figures for your models. And on the next slide, you can see our fantastic developments of our largest business unit, which we call Graphite Solutions. You can see that the turnover increased upon 2020 from EUR 407 million to EUR 512 million. And EBITDA almost doubled from EUR 63 million to EUR 118 million in 2022. And we brought the whole business unit to an average margin of around 23%. Now we show you figures which we never disclosed before. And you can see in the middle, the split of our business in the business unit Graphite Solutions. You can see here we are going into battery materials, industrial applications and so on. But 1/3 -- so 36.5% of our business is semiconductor business. And you can see that the business has been grown in the last year from 28% to 36%, and we want to grow it even further. And we shifted some material from our solar business into semiconductors because demand for our products is so high, and we also did a little bit of debottlenecking. On the right side of the slide, you can see the split of our business. In our semi business, we serve in principle 3 market segments. The smallest is LED, which accounts for roughly 10% to 15%, and the remainder is shared between SiC, silicon semi and SiC semiconductors. And you can see how nicely we have grown the business from '21 to '22 from a total of EUR 123 million to EUR 182 million. And also the share of silicon carbide has grown faster than the share of silicon. On the next slide, you can see our forecast for the next 5 years. And we want to grow our semiconductor segment to a turnover above EUR 300 million. And this is our base case scenario, which we have provided, and everything is based on already concluded contracts. There might be more to come, and you can now -- please go back 1 slide. You can see here the CAGRs, which we expect. We want to grow silicon carbide by 15%, and this is double the amount of silicon, which is only supposed to grow by 7%. You can see how we did the investment. And we are splitting the investment into new production capacity in an investment phase and in production capacity increase phase. And first of all, you have seen our customers will grow strongly. And Joel said that the CAGR of the silicon carbide market is around 34%. They need graphite parts, because all furnaces, all production units are based on graphite, and we are the only one-stop shop in the industry. And they expect the graphite market becoming short. And this is why most of our customers gave us something we call a customer down payment. The customer down payments are cash friendly for us and interest-free. And we collected a very high double-digit million euro amount, which we invest in the second phase -- in the capacity increase phase into our assets. By getting the customer down payments, we assure a certain capacity to the customer. The asset which we invest is owned by us. So it's not owned by the customer, and we pay the money back. We pay the loan back with the purchased items of the customer. So that means no offtake of the customer means no payback. And this is why we call this contract soft take or pay agreements or embedded to take or pay agreement. So we are pretty sure that the customers, which gave us the down payment loan that they will take in the next 3 to 4 years our products. The contract duration is between 3 and 5 years. So the customers have the obligation to purchase the volumes, which we agreed up on. This is all about contracts, which we have done so far. And currently, we are in discussions with more customers and with the same customers about further extensions. This is what we call a second step, and this is not included in our figures, a second step. Here, you can see what we are doing with the money. So again, the amount of money which we collected is a very high double-digit million euro amount. There's not that big bang investment. We are debottlenecking the value chain everywhere in the world. And here, you can see a collection of our largest investments. And you remember from the movie, the value chain, we produce graphite then we graphitize it, we clean it up and we machine it and we invest in all the steps. In Morganton and in Bonn, we invest some of the money into an increase of the capacity of our graphite production. In Shanghai and in St. Marys and also in Bonn, we invest in the purification step where we make very clean graphite and also machine it because the product which we sell to the customer is at the end a heater or a crucible and not a simple block of graphite. And we want to go the full value chain to have -- to have the highest earning for us. In Morganton, we invest in the production of porous graphite, and we intend to double the capacity in the next 2 or 3 years in this stage. So you see a lot of investments, and this will help us to fulfill the commitments which we gave to the customers, which gave us down payment. So our future is silicon carbine. And on this slide, you can see the summary of what is happening. So the driver of all our activity is climate protection. And you know that almost all countries launched climate protection programs. Niels explained to you that silicon carbide is a key driver in electric mobility in photovoltaic and in all renewable energies. And this is why there is a higher demand for silicon carbide. For silicon carbide, you need a lot of graphite and the graphite market is expected to be undersupplied. And this is why the silicon carbide makers want to secure graphite and they give us customer down payments to do this. We take the money, invest in this and increase our capacities, and we have soft take-or-pay agreements, deliver the material. And with the money or part of the money we earn with those parts, we give back the down payments. This is very cash-friendly and investment and interest-free. This is our last slide, and we were often asked about resilience of this business model. So we are putting a large share of our business into silicon carbide. And as I told you, the market is undersupplied, and first level of resilience are the embedded take-or-pay contracts. So no take of the customer is no repay of the loans. So we feel pretty safe with our customers and the agreements we made. Second, we did those agreements with almost all customers you have seen on the list, so more than 10. Even if one of the silicon carbide producers fails or region fails, we have more opportunities at other customers or other regions to compensate for this. And this slide has a title Graphite is Graphite. We are a graphite producer. We give it into the silicon graphite market. If the whole silicon graphite markets developed worse than we thought, graphite is graphite, and we can easily push our crucibles, our heater elements, our graphite blocks to other markets than silicon carbide. We can push it back to the silicon market, to the photovoltaic or to the LED market. So we have triple of resilience in this business model. And this is why we think that we can deliver on the promise we make, and we can easily fulfill our 5 years business plan, which we gave you some weeks ago. So this is what we have prepared today and Claudia, I would like to hand back to you.

Yes. Thank you. Now we can start the Q&A session, and the operator will give you some more details about the technical handling.

[Operator Instructions] First question is from the line of Andreas Heine with Stifel.

Yes, I would like to start first with the growth projection you have. So you outlined that the SiC market grows by 34% over the coming years. But your own growth, you say might be in the region of 15% for SiC. Why are you more cautious for your own growth and for the SiC market? That's the first question.

Andreas, thank you very much for these questions. And to be honest, we expected this question. And this is the third cushion we put into our business plan. The market for SiC will grow with a CAGR of 32% as you have seen. And we expect, and this is what Niels explained to you, some customers are using the graphite parts only one time and then they exchange the crucible, exchange the heater. And we expect a certain learning curve that this usage of, for example, crucible will be extended to 3 to 5 and maybe end up at 10. We assume this experience curve in the next 10 years. And this is why the graphite supply is lower than the silicon graphite growth. And this is certain cushion, which we have currently, we don't see these effects, but we have seen similar effects in the silicon market and expect the same take place in silicon carbide.

Okay. That makes sense. Then the second question is, let's say, if I would like to characterize the different graphites. And I -- in a simple way, I would think of the isostatic graphite used for the ethane insulation And you have the felts, which I think is expanded natural graphite and then you have the porous graphite. Sorry for my ignorance. But I would assume that the process to get to these products is completely different. So a different value chain. Could you help me in understanding whether this is correct.

Basically, what we internally call different pressing technologies, they are in use to arrive at these various product types. For instance, a graphite felt can even further be separated between a soft felt, which can be wrapped around a more rigid structure and rigid felt, which is a combination of a binder material with a fabric material. And the combination of that would give them, for instance, an easy to replace or to exchange insulation pack. So that's on the insulation side. Isostatic graphite. That was, I think, nicely shown in the video is using then an isostatic -- called isostatic pressing technology to come to a very homogeneous, uniform distribution of the material properties within either the heater or the crucible. And porous graphite uses a different technology that leaves a certain porous structure within the graphite. Now as you can see here in that picture, again, that porous graphite separates the SiC crystal from the SiC powder sitting on the bottom. Now that PBT process is a sublimation process. That means the SiC powder will sublimate and the gases will flow through that porous layer. And the porous graphite helps to either purify and/or adjust the geometry that is the ratio of silicon and carbon within the deposition process. So each of the components has a specific, tailored characterization. And certainly, we also internally are using different technologies to arrive at these specific material properties. What they have in common, though, and maybe I just shortly elaborate on that. All of these components, as Torsten has indicated, need to be highly pure compared to a silicon manufacturing process, for instance where quartz glass crucible is used. This will not work at these temperatures here. That means graphite in SiC production is a direct contact material to the SiC powder and the SiC crystal. And that brings really the purity and homogeneity requirement to another level. And our portfolio exactly matches for all of the shown different prototypes here, these various requirements and contribute finally to these contracts and the one-stop shop approach.

Understood. Maybe adding to this, if these 3 different product categories, do you have the same competitors for all of them? And are you similar strong in these 3 or at least 1 where you are, let's say, have a significantly higher market share. Yes, that's the next question.

Andreas, there are some competitors of us, but none of the competitors has a full range of products. And this is why we call ourselves the only one-stop shop in the industry. So we can deliver all of them. None of our competitors can do this. We have a very strong position in isolation where we are among the top players. We are 1 player in isostatic graphite. There are others, but our isostatic graphite is very, very pure. And for porous graphite, we are also one of the leaders. The total package is what is very special for SGL. And imagine when you are a producer of silicon carbide and you mix up graphite components of different suppliers. And then you have a defect in your silicon carbide, whom do you make responsible. So it's much easier for them to purchase everything from the same supplier. And this is our beauty in the silicon carbide business.

[Operator Instructions] The next question is from the line of Dr. Thomas Junghanns from Berenberg.

I hope you can hear me. So I would like to know how the customer concentration looks like in the silicon carbide segment for graphite products. So maybe you can give a little bit more color on the percentage of sales accounted for by the top 3 customers, for example.

Yes, Thomas, thank you very much for this question. Unfortunately, we cannot disclose this information. We have NDAs with all of the customers. They are really anxious of disclosing anything, but I want to come back to this. This is the 2022 market distribution. So that's Wolfspeed is a very dominant SiC producers. They have a market share of 50% or even more. And there are other players like SICrystal and Coherent. But where I want to point your attention to is the segment others. In others, there are 10 or 15 new players, some of them in China, but also players in Japan which come up and which try to intrude into the market of Wolfspeed. And we -- they are growing even faster. They announced a growth rate of factor 10 while the standard players have growth rates of Factor 5. And we did our customer down payment contracts with more than 10 of them. So we are in most of the stars, which are currently in the industry, but also with the upcoming players, and this is reducing the risk of our SiC exposure. And I'm sorry that I cannot name the exact quantities, which we didn't.

Yes, sure. Understood. Another follow-up question with regard to the cost of the graphite parts. How much or how high is the share of the cost of graphite parts and the production, for example, of ingot. Could you...

Yes, maybe we go back to the furnace picture. And I mean already the illustration shown here shows that the majority of the components from which that system is built is from graphite. So we assume it's definitely a double-digit percentage in the total cost. But that's also very proprietary information from these players. It's not really disclosed. But we assume it's definitely not a small double-digit percentage.

Okay. Are there any substitutes for graphite, for example, for equipping these furnaces?

No.

The next question is from the line of Sven Sauer with Kepler.

I have also a couple of questions. Thank you for the presentation and for the details. I was wondering if the geopolitical tensions in the semiconductor space, if there potentially could be any impact on SGL. I know right now, it's just regarding the end markets and the consumers and not the producers, but I wanted to hear what your thoughts are on this. Also in light of that you have production site in Shanghai. And the second add-on question would be how dependent are you on the site if geopolitical tensions were to increase.

Sven, thank you very much. This is a very, very good question. You have seen that we have doubled more or less the value chains. We have an Eastern value chain and a Western value chain. And you are right, what we currently observe is the split of those 2 value chains, and there's a huge issue with IP. So with the silicon -- with a graphite production, which is used in silicon carbide, for example, products, which we produce in St. Marys. It's not sure that we can deliver them into China as there are new laws in the U.S. to protect the IP for high-technology semiconductors. So my expectation is that in 5 years from now, we have 2 separated value chain, 1 Eastern and 1 Western. And we have really 2 different types of IP in the Eastern and in the Western value chain. We produce higher-quality parts in the Western value chains, especially in our St. Marys side in U.S. And maybe, Niels, you have...

Maybe to add to that, it certainly also affects the end customers from our customers that is from the silicon carbide wafer manufacturers. We know that the key chip manufacturers have global contracts in place today. But certainly, looking at the capacity increase globally also in China and in other areas of the world, this is certainly set up in a way to balance these geopolitical risks. And in the end, looking back 10 years in how the photovoltaics globally evolved and the photovoltaics modules in the end, concentrated in China, I'm not expecting that to repeat in a similar way here in the SiC semiconductor industry.

Sven, there is a question which might be related to this. We are often asked, are you afraid of competition from China? For the same reason, not. First answer, why not from China because the material is not pure enough to be used in the silicon carbide industry. Maybe they are there in 5 years, maybe in 10 years from now. But as the value chains are separating. The U.S. companies and the silicon carbide market is concentrated currently in U.S. will buy from a Western source and not from China. And this is another level of protection, which we feel with our Western supply chain. And most of our CapEx is going into the Western supply chain not in the Shanghai route.

Okay. And just a follow-up. Can you -- is it possible to share the percentage of clients -- of your clients, Eastern and Western, I mean, how many percentage -- how many the share of clients that you have from China and the share of clients you have from the Western world because, I mean, obviously, you also just referred to that, and I think this is what we're going to see is a further split of this threshold between East and West, yes?

Yes. Sven again, this is -- these are producers of silicon carbide. And majority really is Western and the newcomers are from China. I would assume -- I don't know it's by heart. But our share in the Western chain is very high. I would assume 80% plus or so. But if the Chinese are evolving, and we are allowed due to IP reasons to deliver, we might increase our capacity even further and also take this share of the market. But currently, we focus on European and U.S. and also Korean and Japanese customers now.

Okay. That's very clear. And third and final question regarding often spoken about topic right now in the media regarding AI. Apparently, some of the big tech companies and the market is saying that there will be a requirement for advanced chips in generative AI going forward. Could this have a potential impact on the SiC market and for SGL? Yes.

An indirect effect. So in order to operate these computing hubs and computing centers and the data centers, therefore, you need efficient power supplies, and there silicon carbide will be used. But the actual power or the processors and memory chips, which are the basis for AI and other advanced technologies, they will remain silicon-based. So clearly, the advantage of a wideband semiconductor comes into play when it comes to a combination of high power, that is high voltage and current plus high operation frequencies. And this is ideally given in renewable energy generation and electromobility.

And the main application of silicon carbide, and we called it several months ago, we called it internally power electronics. Is everything where you convert AC and DC and the part, which is doing this in the car inverter. And you also need an inverter when you have a photovoltaic equipment on your roof to put it into the line you need also an inverter. And for this power electronics, you need silicon carbide. The computer ships and your mobile phone is still done with silicon. But when power comes into play and power conversion, then you need silicon carbide. And these power electronic applications grow with a CAGR of 34%.

The next question is from the line of Andreas Heine with Stifel.

May I add another 2. The first is on the down payments you received. Do these payments cover all of the SiC-related CapEx? Or is something more coming from [indiscernible]?

Andreas, you know that SGL invested too much in the past. And as Thomas and me came into the company, we restricted our CapEx to the depreciation level, which is around EUR 60 million. For the SiC growth, we do more. And everything we do more is backed by customer down payments. This year, we want to invest plus/minus EUR 90 million. And the plus, which is above EUR 60 million goes for almost 100% into silicon carbide. So the answer is more or less, yes, all the amount which is coming from customer down payments goes into the expansion of our SiC value chain.

Maybe then adding to this. Of the EUR 60 million, which is on D&A level, how much of that is growth investments? And how much is maintenance?

A little -- out of the EUR 60 million, a little bit less than 50% is maintenance and a little bit more than 50% is growth in other segments. And you know we are running 3 other business units. They need also money and also the Graphite Solutions outside the semiconductors, there are also businesses, which are growing very nicely, which we have to feed. This is why not all our money is going into silicon.

Good. And then I just want to understand how you think this learning growth might impact also prices and margins and how that evolves. I think it's fair to assume that the SiC graphite is by far the highest margin product in your graphite segment. If the market, I wouldn't say matures, but becomes bigger, is there, let's say, a tendency that this higher volume goes with lower prices and lower margins?

Well, first of all, I would say there's a tremendous learning curve going on, but I can clearly say the focus today and for the coming 2, 3 years will be on improving the quality level of the SiC wafers compared to silicon and the decades long history of silicon. Silicon carbide wafers still have a significantly higher defect density compared to silicon. And the primary focus that our customers bring towards us is help us contribute to reducing the defect densities in the SiC crystals that are grown and to let's say, stabilized then the yield and the outcome from this furnace operations. This is the clear #1 driver for the coming 2, 3 years. Secondary effects in an early R&D stage tend towards thinking about lifetime improvements and learnings towards a more efficient operation of the equipment. But right now, the clear focus is on the quality side and not on the cost side.

And that means that you can ask us any price you would want.

Sorry?

Any price that we would want, not to that extent.

No, not. There is competition, of course, in the market. If we would ask for too high prices, the market will move away from us. But the margin level is satisfactory currently fast. But I want to answer your question in a different way, Andreas. If we, for example, would give the customer unpure graphite and he spoils the ingot or the wafers for the silicon graphite production or there are impurities in, the damage is at several ten thousands or hundred thousands of dollars. So this is why they are very anxious and replace some of our graphite parts every run as they start the furnace from you, because the damage at the chip level or at the wafer level is so high. And this is why also the price pressure for the graphite parts is not that big because damage by switching to wrong parts, it's much higher. And they have such a good market because adoption rate of EV cars from silicon to silicon carbide is growing. A lot of OEMs are currently doing contracts with SiC producers, they just need volume and material and have to improve, let's say, output and price pressure, we don't see it as that big currently.

There are no further questions, and I hand back to Claudia Kellert.

Yes. Thanks a lot to everybody for attendance. You will find the presentation as well as the video on our website. And if you have further questions, do not hesitate to contact the Investor Relations team. And I see that there is another question from Sven. Sven, that is correct.

Mr. Sven Sauer from Kepler, you are now live.

Sven, maybe you raised your hand when we were....

Sure. Sorry. Sorry, yes, 1 follow-up question, if I may. You mentioned that of your -- in your client base, you are seeing in China and in Japan, maybe 10, 15 new market players entering the market right now. I think you already answered this, but I just wanted to confirm, do you see that there is a risk because we've -- this is something that we can see in other industries. Do you see a risk that these players will come into the market and maybe dump prices, exploiting the high volumes which would kind of trigger some kind of lower prices overall in the market?

I mean from my perspective, the quality threshold is directly detectable when producing the silicon carbide chip. And producing a silicon carbide chip for the automotive segment means these parts need to be robust. And with, let's say, dumping conditions and, let's say, which I wouldn't foresee at present, actually and compromising anywhere on the quality level, this would not work for the kind of applications that are here really driving the business.

So I'm -- last try, if there are any more questions from the audience, then raise your hands. No. So then thanks a lot once more for your attendance and have a fantastic and nice afternoon. Thank you, and goodbye.

Thank you. Goodbye.

Goodbye.