China’s photovoltaics (PV) may be approaching a tipping point

China’s photovoltaics (PV) may be approaching a tipping point
The plight of China’s photovoltaic (PV) industry dates back three years, when a surge in panel demand boosted prices and unlocked ambitious expansion plans that resulted in oversupply.

The sector ended 2023 with the capacity to produce 1,154 gigawatts of solar modules, more than double the capacity of two years earlier. Projected demand for this year is just 593 gigawatts, according to BloombergNEF.

The health of China’s photovoltaic (PV) industry, which accounts for about 80% of global output, is critical to the fight against climate change. Its problems highlight how difficult it is to match output and demand in the many fast-growing sectors linked to the energy transition.

The growing rivalry between the United States and China is also making life difficult for Chinese manufacturers. Washington is planning to double import tariffs on the country’s solar equipment to 50%, and is also going after Chinese companies that have set up factories in Southeast Asia.

Trade relations between Beijing and the European Union, a major market for Chinese solar equipment, are also deteriorating. A growing dispute over subsidies has spurred a tit-for-tat feud that began with electric vehicles and has since spread to pork, dairy products and brandy.

“Chinese manufacturers are responding to low profitability and uncertainties around limitations on market access in the US and EU,” Goldman analysts including Trina Chen said in a note this month. “The Chinese photovoltaic (PV) industry is heading toward the final stage of a down cycle, with a cyclical bottom likely in 2025.”

Longi’s earnings were hit the hardest, with its net losses amounting to 5.2 billion yuan ($740 million) for the first six months of the year after making a profit of 9.3 billion in the same period of 2023. Tongwei Co. and TCL Zhonghuan Renewable Energy Technology Co. each posted losses of more than 3 billion yuan. JA Solar Technology Co., Xinjiang Daqo New Energy Co. and GCL Technology Holdings Ltd. were also in the red during the period. Longi’s shares fell as much as 1.9% on Monday, while Tongwei fell as much as 2.2%.

“Faced with the rapid expansion of industry production capacity over the past two years and the complex global trade environment, the industry has entered a period of deep adjustment,” Longi said in its earnings filing.

Several executives at major Chinese companies have resorted to asking the central government to intervene to help the industry recover. The menu of options laid out included regulating which new factories can be built, cracking down on less efficient facilities, limiting price cuts and promoting consolidation.

Some of those actions are already underway. Tongwei earlier this month bought Jiangsu Runergy New Energy Technology Co. in the industry’s first major consolidation move during this downcycle, and expansion plans for several other companies have been delayed or canceled.

Still, it will likely take another six to 12 months for solar company prices to rise back to breakeven levels, Morgan Stanley analysts including Eva Hou said in a note. “The industry will need to either further reduce production costs or bring capacity consolidation to a higher level to bring supply chain prices back to a sustainable level,” she said.