The photovoltaic (PV) industry in 2024 finds itself engulfed in a maelstrom of uncertainty and turmoilOriginating from the mismatch between supply and demand that began in 2023—a consequence of abundant production capacity coming online and shifting international trade dynamics—the industry has entered a fierce battleground of price warsThis situation has prompted a significant oversupply in the market, where the supply of PV products has drastically outstripped demand.

A recent database analysis reveals a troubling trend among publicly traded companies in the solar equipment sectorAmong the 66 A-share listed companies categorized under photovoltaic devices, a startling 41 companies have reported a year-on-year revenue decline by the third quarter of 2024. Furthermore, 54 of these companies have seen a drop in net profits, with 29 of them incurring losses in the same timeframe.

This distressing price war has cloaked the industry in pessimism, leading many players to embark on irrational competition

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To combat these pressing challenges, multiple organizations, including the China Photovoltaic Industry Association and major players within the PV industry, convened in October 2024. Their discussions focused on establishing pricing thresholds aimed at preventing excessive industry competition and protecting viable business practices.

In the spirit of resisting these detrimental market pressures, firms such as Tongwei Co., Ltd., and Daqo New Energy Corp have announced plans to implement controlled production cuts, allowing for the elimination of inefficient capacity and potential restoration of supply-and-demand balanceNevertheless, the outlook for the PV industry indicates that, in the short term, reversing these imbalances will prove challenging, and amidst this reorganization, smaller PV firms will undoubtedly face fierce survival battles.

A Decline in Prices

As the largest photovoltaic manufacturing hub globally, China holds an unparalleled position of dominance in the PV market

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By the end of 2023, notable statistics revealed that over 95% of silicon wafer production capacity, 90% of solar cell capacity, and 85% of module capacity were sourced from ChinaThis nation’s photovoltaic modules account for more than 75% of the global market, while its share of battery shards hovers around 80%, with silicon wafers capturing an impressive market rate exceeding 95%. Moreover, the top ten PV companies in the world include seven Chinese firms, cementing China's pivotal role in shaping the industry's landscape.

China’s robust export of PV products has generated substantial employment opportunities while also contributing significantly to the national foreign exchange reservesBy 2023, exports of Chinese photovoltaic modules hit a remarkable 211.7 GW, reflecting year-on-year growth of 37.8%, thus constituting approximately 40.9% of total domestic production, with revenue reaching a staggering $39.61 billion

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Additionally, the country has witnessed a considerable uptick in solar power plant installations, bolstered by favorable policies, achieving 216.88 GW of newly added installations in 2023 alone, marking a 148% increase.

In light of both soaring domestic and export demand, photovoltaic companies enjoyed backing from local governments and capital marketsOver the past five years, 1,324 firms within the Chinese PV industry have secured financing that totals an impressive 942.48 billion yuanSpecifically in 2023, industry financing reached a remarkable 246.82 billion yuan.

With substantial government and market support, the domestic photovoltaic industry’s capacity has surged rapidly, expecting total solar module capacity to exceed 1,200 GW by 2024. Yet, with the introduction of N-type batteries projected to hit 1,500 GW by year-end, the industry faces a severe supply-demand mismatch, with some enterprises reporting operating rates plummeting to 45%-50%.

The escalating cost-cutting measures initiated the price war across the sector

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At the beginning of 2023, major producers like LONGi Green Energy and TCL Zhonghuan openly announced reductions in silicon wafer pricesFollowing these leading firms’ lead, the entire supply chain—including silicon materials, wafers, cells, modules, and various upstream and downstream products—saw a price declineHowever, this resulted in companies witnessing an increase in sales figures accompanied by a downturn in year-on-year revenue.

Data reveals a troubling outcome for the aforementioned 66 A-share listed solar equipment firms by the third quarter of 2024, with 41 companies reporting revenue declines, including a staggering 80.22% drop in the revenue of Jingang Photovoltaics, a smaller solar cell and module manufacturerNotably, 54 of these companies suffered net profit declines, with 29 reporting losses amounting to a cumulative deficit of 30.7 billion yuan

Companies such as LONGi Green Energy and TCL Zhonghuan have also disclosed losses surpassing 6 billion yuan in the first three quarters.

Technological Pursuits Amidst Turmoil

The hurdles of supply-demand imbalance and internal competition have exerted immense pressure on the industryAs of the third quarter of 2024, only 37 out of the 66 companies surveyed returned profits, with the overall net profit for the sector pegged at -1.436 billion yuan.

The internal strife has imposed heavy burdens on small and mid-sized enterprisesAccording to incomplete statistics, at least 15 solar companies halted their IPO plans in 2024, including entities that had already completed their registrations

Furthermore, equity financing initiatives pursued by companies like Aiko Solar have faced continuous delaysAdditionally, ST Aikang was delisted due to consecutive losses, breaches of information disclosure protocols, and a stock price falling below 1 yuan for twenty consecutive trading days.

There is, however, a silver liningStarting in October 2024, the China Photovoltaic Industry Association and various leading firms gathered to delineate price boundaries and curb detrimental market practicesThe Association has stated that bidding for photovoltaic modules priced below 0.68 yuan/W might infringe on the law, while also issuing minimum cost reference prices for solar modulesIn alignment with the 'anti-involution' policy, firms like Tongwei and Daqo have decided to undertake gradual production reductions, targeting the removal of inefficient capacities from their operations.

While the newly instituted policies seek to mitigate low-price competitive practices, they do not address the underlying supply-demand imbalances

Looking beyond pricing, the race to outpace competitors through technology and efficiency gains is likely to escalateBy the fall of 2024, 24 companies out of the A-share photovoltaic sector recorded research and development spending exceeding 5%. Additionally, four firms' investments surpassed 1 billion yuan, with a collective R&D expenditure of 20.8 billion yuan across 66 photovoltaic companies.

This substantial investment in research and development is facilitating rapid technological advancementsIn the field of solar cells, N-type Heterojunction Technology (HJT) cells are gradually overtaking the previously dominant PERC technologyLeading firms like LONGi Green Energy and Aiko Solar are investing in N-type Bifacial Cell technologyAdditionally, companies, including Risen Energy and JA Solar, have secured abundant funding to drive the mass production of innovative technologies like perovskite and bifacial solar cells.

The implementation of policies and the cessation of ruthless price wars do not mark an end to uncertainty in the photovoltaic industry

Instead, the ongoing technological race and the quest for operational efficiency among leading firms suggest that weaker, smaller enterprises may be squeezed out of the competitive landscape.

Prospective Industry Restructuring

The current predicament of the photovoltaic industry is not a first; the sector has previously faced crises of mismatched supply and demandAround 2010, Western countries imposed high anti-dumping and anti-subsidy tariffs targeting Chinese solar products, coupled with numerous nations downgrading or revoking solar subsidiesThis series of events culminated in a damaging effect on the export capabilities of domestic solar companies, leading to an adverse supply-demand imbalance that triggered industry-wide restructuring.

After 2010, several notable firms—such as Wuxi Suntech, Yingli Green Energy, and Sany Group—succumbed to bankruptcy

The most pronounced effects occurred in 2012, when over 350 companies reported insolvencyThis wave of restructuring concluded with market consolidation, a resurgence in domestic demand, and changes in international trade dynamics, ultimately heralding an era of prosperity for the photovoltaic industry.

Currently, the crisis confronting the solar industry bears striking similarities to that of the earlier decadeOn one hand, both domestic and international market demand appears to be saturating, leading to a deceleration in growth rates; on the other, rampant capacity expansions driven by local governments and capital market financing have inadvertently aggravated supply-demand misalignmentsAs of May 2023, LONGi Green Energy's founder and CEO, Li Zhenguo, articulated his apprehensions regarding this capacity mismatch, postulating that within two to three years, over half of China's solar manufacturing firms might face exit from the market.

In an effort to counteract these unnatural market conditions, the government has initiated a slew of policy measures aimed at enhancing technological standards, combating below-cost competition, and regulating local investment policies for solar power

The China Photovoltaic Industry Association has echoed the sentiment for enterprises to refrain from hasty expansions, thus preventing redundant and inefficient capacity development.

Despite these remedial policies, immediate effects are unlikelyAlthough the government and associations have put multiple safety nets in place for the photovoltaic sector, reversing supply-demand relationships requires time for implementationEnterprises, particularly smaller firms, are currently grappling with liquidity risks precipitated by past overexpansion and heavy indebtedness.

Recent documentation reveals that Runyang Co.—a single-crystal PERC solar cell manufacturer that received approval for its public listing in June 2023—has abandoned plans to proceed with an IPO, instead seeking acquisition by Tongwei

Additionally, media reports indicate that certain production capacities at Runyang have been haltedSince the beginning of 2024, by current estimates, 15 solar firms have already suspended IPO processes as a result of market volatility.

The financial burdens are not confined to unlisted solar enterprises; publicly traded firms are equally under pressureAccording to Wind database metrics, as of the third quarter of 2024, at least 31 solar firms displayed asset-liability ratios exceeding 60%, with six exceeding 80%. These firms collectively garnered short-term debt amounting to 107.4 billion yuan and long-term liabilities that reached up to 213.3 billion yuan.

Amidst accumulating interest-bearing debts, the photovoltaic firms face potential impairment risks to inventories, fixed assets, current construction projects, and receivables due to the misalignment of supply and demand

Notably, companies like TCL Zhonghuan and Aiko Solar recorded significant asset write-downs during the initial three quarters of 2024. The aftermath of the price wars has resulted in considerable losses for those firms laden with debt, leading to pronounced liquidity challenges.

In May 2023, Li Zhenguo of LONGi Green Energy voiced his concerns regarding the industry’s potential disruptions due to capacity mismatchesYet, by December 2024, he noted in an interview that the industry had navigated its darkest hoursAwareness within the sector has been raised about the dangers of cut-throat price competition, encouraging a shift towards rational corporate behaviorsStill, the effects of self-regulation in the industry will require careful monitoring before widespread positive outcomes are realized.

Signifying the natural evolution that accompanies market competition, companies that can endure will ultimately prevail