After enduring a harrowing earnings season, signs are emerging that China’s solar industry may be on the cusp of recovery. The industry, dominated by giants like Longi Green Energy Technology Co and five other leading firms, has faced severe challenges due to a surge in factory constructions in recent years, resulting in a glut that pushed prices to unprecedented lows.
Collectively, these firms have reported staggering losses totaling US$2 billion in the first half of the year. This downturn has triggered a wave of restructurings among smaller companies and heightened vulnerabilities amid escalating trade tensions with the US and Europe, posing risks to exports.
Despite these adversities, industry analysts see potential for a gradual recovery. Investment behemoths Goldman Sachs and Morgan Stanley anticipate that forthcoming factory closures will rebalance supply and demand dynamics, signaling an end to the price decline. In a move reflecting this optimism, Longi and TCL Zhonghuan Renewable Energy Technology Co have announced hikes in solar wafer prices.
Cosimo Ries, an analyst at Trivium China, based in Shanghai, shared a cautious outlook. “It’s doubtful prices can drop further; it’s too great a strain even for the largest industry players,” he remarked. “We are likely in for an extended period of market correction before the excess capacity is absorbed.”
The predicament facing China’s solar sector can be traced back to three years ago when a boom in panel demand led to aggressive expansion plans. This resulted in a capacity to produce 1,154 gigawatts of solar modules by the end of 2023—more than double the figure from two years prior, with projected demand this year at just 593 gigawatts, according to BloombergNEF.
The sector’s health is pivotal, given that Chinese manufacturers account for approximately 80% of global solar production. This situation underscores the challenges of scaling up industries integral to the energy transition without creating unsustainable surpluses.
Further complicating the landscape is the intensifying geopolitical rivalry with the United States, which is considering doubling import tariffs on Chinese solar equipment to 50% and targeting Chinese firms establishing bases in Southeast Asia. The situation with the European Union is also deteriorating, with disputes extending from subsidies for electric vehicles to agricultural products.
In response, analysts at Goldman Sachs, including Trina Chen, noted, “Chinese manufacturers are adapting to declining profitability and market access challenges in the US and EU. The industry appears to be in the final throes of a downcycle, with a recovery likely not before 2025.”
Longi’s financial results illustrate the industry’s distress, with the firm posting a net loss of 5.2 billion yuan (US$740 million) in the first half of this year, a stark contrast to a profit of 9.3 billion in the same period in 2023.
The industry’s response has included significant strategic shifts. For instance, Tongwei acquired Jiangsu Runergy New Energy Technology Co earlier this month, marking the sector’s first major consolidation move in this downcycle. Plans for expansion at several companies have been either delayed or cancelled.
Analysts from Morgan Stanley, including Eva Hou, predict that it could take another six to 12 months for prices to return to break-even levels. “The industry must either further reduce production costs or intensify efforts towards capacity consolidation to restore supply-chain prices to a sustainable level,” she stated.
As the solar industry navigates these turbulent times, the coming months will be crucial in determining whether these initial signs of stabilization can herald a sustainable recovery.