Rogers Corporation, known for its engineered materials used in a vast array of applications, from smartphones to electric vehicles, presented its Q1 2024 earnings amidst a shifting economic landscape. While the company highlighted an improving outlook for industrial demand and a strong performance in the EMS EV battery solutions, a closer look at the transcript reveals a potentially concerning trend: a cautious approach to capacity investment in its power substrate business, the heart of its EV ambitions.

The transcript emphasizes a "measured approach" to capacity investments, adjusting the timing of spending to align with demand levels. While this appears prudent given the current economic uncertainty, especially within the nascent EV market, it raises a crucial question: is Rogers, under the guise of measured spending, actually pulling back from its previously aggressive stance on EV-related capacity expansion?

This "measured approach" is particularly notable in the context of the company's previous pronouncements. In the Q4 2023 earnings call, Rogers acknowledged delays in achieving their March 2023 Investor Day targets, pushing the timeline beyond 2025. These targets included substantial growth fueled by the EV market, requiring significant capacity additions. The new ceramic facility in China, expected to be a major growth driver, was slated for commercial production in 2025, reaching a full production run rate in 2026. This timeline, already adjusted from earlier projections, now appears even more uncertain.

The current transcript reveals a palpable shift in tone. While still acknowledging the long-term potential of the EV market, Rogers acknowledges "increased variability" in the timing of EV-related projects. This seemingly innocuous phrase hides a deeper concern: the lack of commitment to the aggressive capacity expansion plan necessary to meet the previously touted EV growth targets.

Consider this: Rogers' curamik power substrates, designed for silicon carbide power modules used in EVs, saw a significant decline in sales in Q1 2024. The company attributes this to customer inventory adjustments, but also admits to "softening demand" within the power module market. This softening demand, coupled with the "measured approach" to capacity investment, suggests that Rogers may be anticipating a lower than previously projected demand trajectory for their power substrates in the EV market.

Comparing Projected Growth with Capacity Investment

Here's where the hypothesis gets interesting: if we compare the projected 15-20% CAGR for the EV/HEV segment with the cautious approach to capacity investment in the curamik business, a potential mismatch emerges. Achieving such a growth rate would necessitate substantial new capacity coming online, yet the company appears hesitant to commit. This begs the question, is Rogers revising its internal projections for EV-related growth downwards?

The transcript offers some clues. While Rogers anticipates their EMS EV battery solutions to ramp up in the 2025-2026 timeframe, this timeline has already been pushed back due to "softer demand." Could a similar, albeit silent, downward revision be occurring within their power substrate business?

While the transcript doesn't explicitly state this, the evidence is compelling. The adjusted timeline for achieving their Investor Day targets, the acknowledged "increased variability" in EV project timelines, the softening demand for power substrates, and the "measured approach" to capacity investment all point towards a potential shift in strategy.

Unanswered Questions

This hypothesis raises further questions. Is Rogers simply exercising prudence in a volatile market? Or are they reacting to a fundamental shift in the EV landscape, possibly a slower adoption rate or a shift in technology that might impact the demand for their power substrate solutions?

Investors would be wise to seek clarification on these points. Understanding Rogers' revised internal growth projections for their power substrate business, specifically in relation to the EV market, is crucial for gauging the company's long-term growth prospects. A deeper dive into the factors driving the "measured approach" to capacity investment will reveal whether it's a strategic response to a changing market or a veiled retreat from their EV ambitions.

"Fun Fact: Rogers Corporation was founded in 1832, making it older than the invention of the first practical electric motor (1834)!"