Wolfspeed's CHIPS Act Refund Bolsters Liquidity But Fails to Address Bankruptcy and Operational Core Risks

What happened

Wolfspeed has received nearly $700 million in tax refunds under the CHIPS Act, providing a near-term financial boost as highlighted in a recent article. This development aligns with the DeepValue report's mention of approximately $600 million in anticipated refundable tax credits, which were part of the liquidity assessment. However, the company remains in Chapter 11 bankruptcy with disclosed substantial doubt about its ability to continue as a going concern, underscoring severe financial distress. The report emphasizes that such liquidity injections do not resolve fundamental issues like a $1.3 billion operating loss and underutilization at the Mohawk Valley fab, which weigh on margins. Consequently, while the refund improves cash position, it does not alter the high equity uncertainty driven by restructuring risks and intensifying competitive pressures in the silicon carbide market.

Implication

In the short term, the refund extends Wolfspeed's cash runway, reducing immediate liquidity concerns and potentially supporting ongoing operations during restructuring. However, investors must closely watch the Chapter 11 plan confirmation process, as delays or adverse terms could lead to significant equity dilution or further financial strain. Operationally, the company's success hinges on achieving sustained improvements in 200mm yield and throughput at Mohawk Valley to drive margin gains and offset current losses. Competitive pressures from peers and Chinese suppliers continue to erode pricing and market share, threatening long-term viability even with government support. Until clear evidence emerges of restructuring completion, operational traction, and a path to profitability, the risk-reward profile remains unfavorable, warranting caution.

Thesis delta

The receipt of the tax refunds confirms a key liquidity catalyst that was already anticipated in the DeepValue analysis, providing no material shift in the SELL thesis. Core risks—including the Chapter 11 process, operational underperformance, and competitive pressures—remain unresolved and dominate the investment outlook. Investors should await further developments, such as plan confirmation and yield improvements, before considering any upgrade in stance.