2024 has been a year of uncertainty for the PV industry. Affected by factors such as the successive commissioning of previous fund-raising and production capacity and changes in the international trade environment, since 2023, there has been a serious mismatch between the supply and demand of global photovoltaic products, and the supply is far greater than the demand, and the photovoltaic industry has also started a tragic price war.

According to the Wind database, as of the first three quarters of 2024, among the 66 A-share listed companies in the secondary industry classification of Shenwan photovoltaic equipment, 41 companies have experienced a year-on-year decline in revenue; Among the 66 companies, 54 companies saw a year-on-year decline in net profit, of which 29 companies posted losses in the first three quarters of 2024.

The

tragic price war has filled the industry with pessimism, and major players have also begun irrational competition. In response to the difficulties faced by the photovoltaic industry, starting from October 2024, a number of units and enterprises such as the China Photovoltaic Industry Association, Zhongguancun Energy Storage Industry Technology Alliance, and photovoltaic head enterprises have held meetings to delineate price red lines and other ways to avoid excessive involution in the industry.

Under the guidance of the "anti-involution" ideology, Tongwei Co., Ltd. (600438. SH), Daqo Energy (688303. SH) and other companies have announced orderly production cuts and elimination of inefficient production capacity, thereby changing the relationship between supply and demand. However, the relationship between supply and demand in the photovoltaic industry is difficult to reverse in the short term, and after the price war, the industry reshuffle may begin, and small and medium-sized photovoltaic enterprises will begin to fight for survival.

Tragic price wars

China is the world's most important photovoltaic industry base and occupies a dominant position in the global market. As of the end date, China's wafer production capacity accounted for more than 95% of the world's total, cell production capacity exceeded 90%, and module production capacity exceeded 85%. In terms of market, China's photovoltaic modules account for more than 75% of the global market, cells account for about 80%, and the market share of silicon wafers has reached more than 95%. In addition, China's photovoltaic equipment market share exceeds 90%. Among the top 10 PV module companies in the world, Chinese companies account for 7.

As the world's most important photovoltaic industry base, the export of photovoltaic products has created a large amount of foreign exchange for the country while solving a large number of jobs. In 2023, China's PV module exports reached 211.7GW, a year-on-year increase of 37.8%, accounting for 40.9% of the country's output, with an export value of US$39.61 billion. In addition to exports, thanks to policy support, the installed capacity and grid-connected capacity of domestic photovoltaic power plants have also increased significantly in recent years, and the new installed capacity of China's photovoltaic power plants in 2023 will be 216.88GW, a year-on-year increase of 148%.

With the sharp increase in export and domestic demand, PV companies have received extensive support from local governments and asset markets. According to the "2024 China Photovoltaic Industry Research Report", the number of financing enterprises in China's photovoltaic industry in the past five years is 1,324, with a financing amount of 942.481 billion yuan, of which in 2023, the total financing of the industry will be as high as 246.82 billion yuan.

With the support of local governments and the capital market, the domestic PV industry's production capacity has increased rapidly in recent years, and the total domestic PV module production capacity is expected to exceed 1,200GW by 2024, and the N-type cell production capacity is expected to reach 1,500GW by the end of the year. There has been a serious mismatch between supply and demand in the industry, and the operating rate of some companies has even dropped to 45%-50%.

In this case, the industry began a price war. At the beginning of 2023, LONGi Green Energy, TCL Zhonghuan and other companies publicly announced that they would reduce the price of silicon wafers they produce. Under the leadership of leading enterprises, the price of polysilicon, wafers, cells, modules, and upstream and downstream products in the industrial chain has begun. Companies in the industry have also generally seen sales growth, and company revenue has declined year-on-year.

According to the Wind database, as of the first three quarters of 2024, among the 66 A-share listed companies in the secondary industry classification of Shenwan photovoltaic equipment, 41 companies have seen a year-on-year decline in revenue, of which the revenue of the smaller solar cell and module manufacturer King Kong Photovoltaic has declined by 80.22% year-on-year. Among the 66 companies, 54 companies' net profit declined year-on-year, of which 29 companies suffered losses in the first three quarters of 2024, with a cumulative loss of 30.7 billion yuan; The losses of LONGi Green Energy and TCL Zhonghuan in the first three quarters have exceeded 6 billion yuan.

Silently spell technology

The mismatch between supply and demand and the involution of the industry have put the entire industry under tremendous pressure. In the first three quarters of 2024, only 37 of the 66 companies in the photovoltaic industry were profitable, and the overall net profit of the industry was -1.436 billion yuan.

According to incomplete statistics, since 2024, 15 photovoltaic companies have terminated their IPOs, many of which have passed the registration; The equity financing plan promoted by Aiko shares and other enterprises has also been delayed. ST iKang (002610.SZ) was delisted due to continuous losses, information disclosure violations, and a closing price of less than 1 yuan per share for 20 consecutive trading days.

Fortunately, starting in October 2024, a number of units and enterprise organizations such as the China Photovoltaic Industry Association, Zhongguancun Energy Storage Industry Technology Alliance, and photovoltaic head enterprises have held meetings to avoid excessive involution in the industry by delineating price red lines. The China Photovoltaic Industry Association (CPA) clearly pointed out that winning bids for PV modules below 0.68 yuan/W was suspected of violating the law, and issued the lowest cost reference price for PV modules. Under the guidance of the "anti-involution" policy, Tongwei Co., Ltd., Daqo Energy and other enterprises announced orderly production cuts and eliminated inefficient production capacity.

The "anti-involution" policy restricts the disorderly competition of enterprises at low prices, but it does not reverse the current situation of mismatch between supply and demand of photovoltaic products. In addition to price, the competition for technology and efficiency will intensify. In the first three quarters of 2024, among the 66 A-share photovoltaic companies, 24 companies have a R&D expense ratio of more than 5%, 4 companies have invested more than 1 billion yuan in R&D, and 66 photovoltaic companies have invested a total of 20.8 billion yuan in R&D in the first three quarters.

After a large amount of investment in R&D, industry technology is also iterating rapidly. For example, in the field of photovoltaic cells, when N-type HJT cells are gradually replacing PERC production capacity, LONGi Green Energy and Aiko have been deploying N-type BC cell technology. In addition, companies such as Roushuo Optoelectronics, Zhongneng Optoelectronics, and Photofactor Technology have obtained a large amount of financing to promote the mass production of perovskite cells, stacked grids and other technologies.

The end of the policy and price war does not mean that the knockout game of the photovoltaic industry has entered the final game. On the contrary, in the case of the head enterprises fighting for technology and operational efficiency, the weaker small and medium-sized enterprises may be eliminated.

The industry reshuffle

Looking back on the development history of the domestic photovoltaic industry, this is not the first time that the photovoltaic industry has encountered a crisis of mismatch between supply and demand. Around 2010, European and American countries implemented high anti-dumping and countervailing measures on China's photovoltaic products, coupled with the cancellation or reduction of subsidies for photovoltaic installations in many countries, which eventually hit the exports of domestic photovoltaic enterprises, and there was a mismatch between supply and demand, and the industry also underwent a reshuffle.

After 2010, a number of photovoltaic companies, including Wuxi Suntech Power, Yingli Green Energy, and Saiwei LDK, went bankrupt. This phenomenon was most severe in 2012, when more than 350 companies declared bankruptcy. This round of reshuffle, with the consolidation of the industry, the release of domestic demand, and the change of the international trade environment, finally ushered in the prosperity of the photovoltaic industry in the past few years.

The current crisis facing the PV industry is very similar to that of around 2010. On the one hand, the domestic and international market demand is gradually saturated, and the demand growth has slowed down; On the other hand, stimulated by local government investment and capital market financing, major enterprises blindly increase production capacity, which ultimately leads to a mismatch between supply and demand in the industry. In May 2023, Li Zhenguo, founder and president of LONGi Green Energy, publicly expressed his concern about the mismatch between supply and demand of PV capacity in the PV industry, and he predicted that in the next two to three years, more than half of China's PV manufacturers may be forced to withdraw from the market.

In order to "anti-involution", the government has issued a series of policy documents, including improving technical standards, cracking down on vicious competition below cost, standardizing local investment promotion policies, etc., and the China Photovoltaic Industry Association has also called on enterprises to reduce blind expansion and avoid duplicate construction of inefficient production capacity.

However, distant water cannot quench the thirst of the near. Although the government and associations have issued a number of policies to support the photovoltaic industry, in the short term, these policies are still difficult to reverse the relationship between supply and demand in the industry, and it will take time for the policies to take effect. The participating enterprises, especially some small and medium-sized enterprises, have struggled with asset impairment risk and liquidity risk after the previous blind expansion and large amount of debt.

According to public information, Runyang Co., Ltd., a monocrystalline PERC solar cell manufacturer that will be registered in June 2023, has abandoned its plan to list on the GEM and intends to sell Tongwei shares, while according to media reports, part of Runyang's production capacity has been suspended. In addition, according to incomplete statistics, since 2024, 15 photovoltaic companies have terminated their IPOs due to market changes.

In addition to unlisted photovoltaic companies, there is also a certain amount of operational pressure on those that have been listed. According to the Wind database, as of the first three quarters of 2024, there are 31 PV companies with an asset-liability ratio of more than 60%, of which 6 companies have an asset-liability ratio of more than 80%. In the first three quarters, the total short-term liabilities of 66 photovoltaic enterprises reached 107.4 billion yuan, and the total long-term borrowings were as high as 213.3 billion yuan.

While carrying large interest-bearing liabilities, due to the mismatch between supply and demand, there is a certain risk of impairment of assets such as inventory, fixed assets, projects under construction and accounts receivable of photovoltaic enterprises. In the first three quarters of 2024, photovoltaic companies such as TCL Zhonghuan and Aiko Co., Ltd. have large asset impairment losses. After the price war in 2024, PV companies with huge losses and high debt ratios already have certain liquidity risks.

In May 2023, Li Zhenguo, founder and president of LONGi Green Energy, publicly expressed his concern about the mismatch between supply and demand of capacity in the photovoltaic industry. However, at the end of December 2024, Li Zhenguo once again claimed in an exclusive interview with Time Weekly that the darkest moment of the photovoltaic industry has passed. Practitioners have realized that low-price competition will only lead to a more miserable situation for the industry, so everyone has become more rational. However, the effect of industry self-regulation will need to be observed for some time.

Of course, the survival of the fittest is the normal development law of the industry, and the photovoltaic industry has successfully survived the crisis and ushered in the prosperity of the previous few years. Therefore, there is no need to worry too much about the current involution of the photovoltaic industry. In the face of the rapid growth of global green power demand, the position of the domestic photovoltaic industry in the global market is still difficult to shake, and the industry will eventually come to the extreme.

(This article is for reference only and does not constitute investment advice, the market is risky, investment should be cautious).

This article is from the WeChat public account "Investor Network", author: Wu Wei, 36 Krypton is authorized to publish.