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This article is written based on public information and is for information exchange only and does not constitute any investment advice.

On August 5, 2024, the latest issue of the highly anticipated 2024 Fortune Global 500 list was officially announced again.Tongwei GroupOn the list, ranked 467th.

In fact, last year, Tongwei Group was included in the 2023 Fortune Global 500 list for the first time and ranked 476th on the list, becoming the first Fortune 500 company in the global photovoltaic industry.

By making the list again in 2024 and further improving its ranking by 9 places, Tongwei became the first photovoltaic company to remain on the Fortune Global 500 list for two consecutive years and maintain its position.

The landmark event that Tongwei, the global photovoltaic leader, has firmly established itself among the Fortune Global 500 is not only an affirmation of Tongwei itself, but also an opportunity for photovoltaic people to have more basic confidence in the industry they are in - photovoltaics has become a pillar industry in the world's economic landscape.

Changes in marginal phenomena often reflect the hidden clues of industry development and upgrading. We can also glimpse the profound changes taking place in the entire industry from the perspective of a bystander: for the photovoltaic industry, which is about to enter a cyclical recovery, the inclusion of leading companies in the list is a shot in the arm, and it is also a new start after self-affirmation of the industry.

01

The Fortune Global 500 list is a showcase of productivity

1. The Fortune Global 500 is more than just a list

The Fortune Global 500 has always been the best epitome of world economic development and industrial changes.

As we all know, the biggest change in the world pattern over the past 20 years is the economic miracle created by China's accession to the WTO, which eventually made it the world's second largest economy. The Fortune Global 500 list clearly records this epic journey of "the rise of the East and the fall of the West":

• In 2000, there were only 10 Chinese companies on the list, accounting for 2%. At that time, neighboring Japan had 107 Fortune 500 companies, and the United States, which ranked first, had 178.

• In 2019, after more than 10 years of rapid development, the number of Chinese companies on the list increased rapidly to 129, even surpassing the United States' 121 for the first time, becoming the economy with the largest number of Fortune 500 companies.

• In 2024, China continued to expand its leading edge, with the number of companies on the list increasing to 133, accounting for 36%, a 20-fold increase compared to 2000.

From the perspective of the distribution of the industry at a more meso level, we can also see that the proportion of technology manufacturing companies in the list has increased, which represents the direction of the advanced productivity of the times. So we say that the Fortune 500 is not only a display of corporate operating results, but also the best window to observe the advanced productivity of the times.

Figure: Changes in the number of Fortune 500 companies. China has become the country with the largest increase in the number of Fortune 500 companies in the past; Source: Fortune

2. Tongwei Group’s consecutive ranking among the top 500 companies is a “coming of age ceremony” for the photovoltaic industry

In 1996, Apple entered the Fortune Global 500 for the first time, and has since led the 30-year ICT revolution, which ultimately had a profound impact on every corner of the world and is still continuing to ferment today.

In 2024, Tongwei has been ranked among the top 500 companies in the world for two consecutive years, which is a coming-of-age gift for the photovoltaic industry. This indicates that after more than 20 years of rapid development, the photovoltaic industry has finally been marked by Tongwei Group's ranking on the top 500 list for two consecutive years, officially announcing that photovoltaics is no longer an unknown small industry, but has become a new force that has been displayed for the first time in the productivity showcase.

The current achievement is just the beginning, and what should be more exciting is the expectation for the future:

• According to estimates by the China Photovoltaic Industry Association (CPIA), by 2024, the global new installed capacity of solar energy is expected to reach 430GW, once again setting a new record high; and by 2030, the global new installed capacity of solar photovoltaic capacity may reach 587GW, becoming the energy type with the largest installed capacity for the first time.

• If we look at the longer term, according to the IEA's estimates, by 2050, photovoltaic power generation will account for nearly 40% of electricity generation.

Electricity is the foundation of the global economy, and this foundation industry has also reached a critical crossroads of energy transformation. Photovoltaics, which has just experienced its "coming of age", is bound to play a vital role in this global energy transformation revolution.

Figure: From the perspective of power supply, solar power generation will continue to increase; Source: IEA, Pacific Securities

02

A new map leading to a new world, photovoltaics is a new quality productivity of the times

1. Photovoltaics is a new type of productivity for the present and the future

Considering the inherent high-tech and green attributes of photovoltaics, we believe that in the energy transformation revolution, a more accurate new label should be: Photovoltaics is a new quality of productivity for the present and the future.

According to the definition of new quality productivity: new quality productivity is the advanced productivity state that innovation plays a leading role, breaks away from the traditional economic growth mode and productivity development path, has the characteristics of high technology, high efficiency and high quality, and conforms to the new development concept. It is spawned by revolutionary technological breakthroughs, innovative allocation of production factors, and deep transformation and upgrading of industries. It takes the leap of laborers, labor materials, labor objects and their optimized combination as its basic connotation, and the substantial improvement of total factor productivity as its core symbol. Its characteristics are innovation, the key is high quality, and its essence is advanced productivity.

The core of the so-called new productivity lies in "new". In essence, the new productivity is a change in the supply side of the current society. Therefore, based on the definition of new productivity, we can extract six key industries: digital economy based on digital technology, high-end equipment where the core competitiveness of manufacturing lies, biotechnology of innovative technology clusters, wind and solar lithium battery energy transformation, quantum technology and other future industries.

Figure: Six tracks for new quality productivity; Source: Guosen Securities

Photovoltaics is in the energy transformation track among the six major industries and is an undisputed representative industry of new quality productivity. Although there are cyclical fluctuations, the added value rate of the photovoltaic industry has been on a continuous improvement channel in the past decade, which obviously meets the requirements of "total factor productivity" in the new quality productivity; and Tongwei has been selected into the top 500 for two consecutive years, which means that this new quality productivity has already possessed considerable strength.

As a new type of productivity, what kind of changes will photovoltaics bring about on the supply side?

In the article "Industry 1.0-3.0", we clearly put forward the latest viewpoint: In the era of industry 1.0-3.0, the energy base was fossil energy with carbon as the core, and the wattage privilege was in the hands of coal and oil, as well as electricity (strong electricity/weak electricity) converted from carbon energy. Until the present of the 21st century, in the era of industry 4.0 with AI technology as the main line, with the quiet switch of the energy base, the wattage privilege will be handed over to photovoltaics.

Obviously, photovoltaics, as a new type of productivity, will systematically reconstruct energy from the supply side. With its green, low-cost, and renewable natural endowment, photovoltaics will eventually help us break through the "material ceiling" of traditional energy structures, allowing us to step out of the current energy supply constraints and light up the technology tree of the Industrial 4.0 era.

For China, photovoltaics, as a new type of productivity, has another special economic mission of the times. At present, my country's economy is in a critical period of switching from old to new drivers and industrial upgrading. China's photovoltaic industry is the undisputed world leader in terms of both volume and technology. Solar energy will surely become an important ballast industry for my country's industrial transformation.

Figure: Industries with continuously increasing added value rates; Source: Guojin Securities

2. New quality productivity must be led by technology, and innovative enterprises will eventually come to the fore

The new era requires that new quality productivity will focus on improving total factor productivity. Therefore, only technology-innovative enterprises can have a future in the more intense competition. For photovoltaics, a typical technology-intensive industry, this has gradually become an industry consensus.

In fact, the process of China's photovoltaic industry growing from big to strong is also a process of technological breakthroughs. On the surface, my country has the world's largest photovoltaic production capacity and the most complete industrial chain, and can supply more than 70% of the components for the global market; on the inside, my country's photovoltaic production technology is the world's leading, for example, the photovoltaic cell conversion efficiency is the highest in the world.

As the urgency of energy transformation grows stronger, and emerging industries represented by AI become new "power-eating beasts", market demand has put forward steeper requirements for photovoltaic power generation efficiency. The photovoltaic industry's "midas touch" attribute has become more and more obvious, which requires companies to obviously invest much more in research and development than in history to meet the needs of the new era.

Take Tongwei as an example. In the past decade, the company has planned for the future and continued to significantly increase its R&D investment. By 2022 and 2023, the company's overall R&D expenditure will reach about 4 billion yuan, an increase of more than 20 times in 10 years, with an annual compound growth rate of more than 40% during the period.

Therefore, we can see that thanks to its technological innovation gene and greater R&D investment, Tongwei has been able to achieve multi-faceted technological leadership in silicon materials, battery cells, batteries, etc.:

• When Tongwei first entered the photovoltaic industry, it chose the silicon material link with the highest technical barriers. After years of technological innovation, Tongwei developed the "Yongxiang Method" polysilicon production process with independent intellectual property rights, making its production cost the lowest in the industry. Currently, the "Yongxiang Method" has been upgraded to the eighth generation.

• In the battery cell segment, when solar cells produced by the industry's mainstream PERC technology faced efficiency improvement ceilings and cost reduction and efficiency improvement bottlenecks, Tongwei continued to break through technological boundaries. Tongwei developed Tongwei's unique high-efficiency TNC battery technology, and was named one of the top ten "Zero-Carbon China" innovative technologies in 2022 awarded by the China International Import Expo Organizing Committee.

Whether it is the supply side or the demand side, photovoltaic companies are being forced to place more emphasis on technology leadership. In the context of high-dimensional competition in technological factors, leading companies with innovative R&D genes are expected to take the lead in the new round of competition.

Figure: Tongwei Co., Ltd.'s total R&D expenditure (100 million yuan); Source: Company financial report

03

Growth after the cyclical crisis: Ten years of unity, moving forward

1. After all the disasters, there will be prosperity

At this new moment of change, many people are still trapped in the fog of short-term cycles. As for this unavoidable problem, we see more and more evidence that the industry is very close to entering a turning point and welcoming the next round of growth.

Two important changes we have observed recently are: 1) Prices in the industrial chain are showing a stabilizing trend; 2) Spontaneous clearance by the industry and orderly policy guidance.

First, there are price signals from the industry chain. At the current price level, silicon materials, silicon wafers, and batteries are all in a state of losing cash costs. Taking the price of polysilicon as an example, after a sharp drop in 2023 and a bottoming out in the first half of 2024, it is currently in a stable state. Looking ahead, as the industry's production capacity is cleared and the peak season of demand approaches, prices are expected to improve.

In addition, policies are guiding the industry to accelerate clearance.

On July 2, 2024, CPIA held an industry conference in Beijing. At the conference, Wang Bohua, honorary chairman of the China Photovoltaic Industry Association, believed that the photovoltaic industry should promote the elimination of backward production capacity and encourage corporate mergers and reorganizations.

In addition, the conference reached the following key consensus:

• The photovoltaic industry has made remarkable achievements in history and has broad room for future development. The fluctuations caused by the current phased mismatch between supply and demand in the industry have not changed the long-term positive trend of the industry. This round of industry fluctuations is a comprehensive test for entrepreneurs and management teams. After excellent companies have gone through this round of industry fluctuations, they will also usher in broader development prospects.

• Financial institutions will continue to support the best and strongest companies, and selectively support advantageous companies with strong moats such as technological innovation capabilities, cost control capabilities, and brand channel capabilities.

• All parties should actively respond to temporary difficulties. Enterprises and between enterprises and financial institutions should strengthen communication and cooperation, ensure information transparency, enhance mutual trust, work together to resolve financial risks, and jointly maintain a healthy investment and financing environment.

As the industry stabilizes and policy guidance accelerates the clearing of stocks, we are expected to see leading companies take the lead in crossing the minefield of the cycle and gain greater competitive advantages in the process of cyclical recovery. This will gradually become a consensus in the industry.

2. The vast sea of ​​stars facing future energy transformation

You can't find new continents by following the old map, and over-emphasizing the cycle will eventually ignore the underlying color of growth. If you walk towards the sun, the shadow will naturally hide behind you.

The most worthy analogy is the transformation of the digital economy. An Internet bubble more than 20 years ago made most people begin to doubt the future of the digital economy, and even believe that IT is a false demand. When we go through the fog of cycles and look back over a longer time dimension, we can see that the digital economy has become the most important part of the global economy and has been integrated into the lives of each of us.

With the booming development of the digital economy, Mag7 (Apple, Amazon, Google, Microsoft, Facebook, Nvidia and Tesla) has continued to rise on the Fortune Global 500 list. Their share of profits of US listed companies has increased from less than 10% in 2010 to more than 20% today, and their market capitalization accounts for more than 30%, making them the world's strongest economic engine.

Energy transformation is a transformation that is no less than that of the digital economy, and the AI ​​revolution has accelerated the urgency and necessity of this transformation.

The photovoltaic industry will undoubtedly play the most important role in this energy transformation. In addition, it is not difficult to find from the Fortune 500 list that this transformation has just begun. Currently, Tongwei is the only photovoltaic industry in the list, and its ranking is relatively low, which is almost the same as the situation of the digital economy 30 years ago.

As the photovoltaic industry emerges from the cyclical pain and is driven by the tide of energy transformation, it will eventually move to the next level, and we will see more and more Chinese companies on the Fortune 500 list.

The path after the cyclical fog has become increasingly clear: ten years of same light, all the way forward.

Figure: Mag7's profit share in the S&P 500; Source: iFinD, CITIC Construction Investment

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