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

In 2024, fierce price wars continued in the photovoltaic main materials industry, and the price of silicon materials fell to a historic low. The current lowest quotation for N-type polysilicon materials has fallen to 39 yuan/kg, a drop of more than 80% from its historical high.

The silicon materials industry has seen a rare phenomenon of the entire industry falling below cash costs.

Coincidentally, similar situations also occurred in silicon wafers and other links. The two silicon wafer giants TCL Zhonghuan and Longi Green Energy also announced huge losses in the first half of 2024, with losses of 2.9-3.2 billion yuan and 4.8-5.5 billion yuan respectively.

This is also extremely rare in the history of photovoltaics.

Although the photovoltaic industry has gone through several cycles, the main sub-chains of the main materials link have all suffered substantial cash losses, which I remember has never happened in history.

In addition to the photovoltaic main materials link, the chairman of a photovoltaic auxiliary materials listed company told the author frankly that the operating difficulties they are facing are something they have never encountered in their more than 20 years of business history.

The photovoltaic industry, or the photovoltaic main materials industry, has reached the most dangerous stage of clearance.

01

Looking beyond the balance sheet

At the end of last year and even at the beginning of this year, leaders of major photovoltaic companies were still full of confidence.

During an institutional survey, the leader of a first-tier photovoltaic giant asserted at the end of last year: Although China's photovoltaic supply is in excess, its advantageous production capacity is not in excess. It is expected that N-type production capacity may be in a tight balance in Q2 2024, and prices will rebound.

A senior executive in charge of strategy at GCL Group also told the author at the beginning of the year that this round of suicidal competition in the main photovoltaic materials segment will not last long.

But to this day, prices of silicon materials, silicon wafers and components are still at historic lows, and the entire industry is losing money on cash costs.

The sense of crisis in the industry spread instantly, and many bigwigs seemed to have just woken up from their dreams.

Some people say that the photovoltaic giants have a large amount of cash and high asset investment in the main materials segment, so the price war will continue for several years, which is really regrettable.

If the price war continues for several years, the current mainstream photovoltaic leading companies will lose everything they have.

Let’s take a look at the balance sheets of leading photovoltaic companies and representative integrated companies in first-, second- and third-tier cities:

The following preliminary conclusions were drawn:

1. All leading enterprises have ample cash reserves, with Hongyuan Green Energy having as much as 6.9 billion yuan and Longi Green Energy having the highest cash reserves of 57.3 billion yuan.

If you look at it statically, it won't be a problem to roll for a few years.

2. In terms of debt-to-asset ratio, JinkoSolar has the highest debt ratio and TCL Zhonghuan has the lowest debt ratio. So we can conclude that TCL Zhonghuan has the lowest debt ratio and JinkoSolar has the worst?

3. In terms of short-term loans, the leading enterprises are generally controllable and the short-term debt risks are relatively low.

4. The inventory is large, which involves certain operating risks.

We won’t discuss the superficial conclusions.

If you reach the above conclusion, it means that you still need to study the photovoltaic industry or financial analysis in depth.

We know that financial report analysis should be combined with the characteristics of the company and even the industry, rather than just looking at the surface data.

First, we need to analyze the source of the huge cash reserves of leading photovoltaic companies.

Hongyuan Green Energy only has about 1.6 billion interest-bearing liabilities and has obtained 6.9 billion in cash reserves under the financial statements. Where does it come from? In addition to the little remaining self-owned funds after completing the investment, its cash mainly comes from "upstream and downstream funds".

Hongyuan Green Energy used about 1.1 billion yuan of "occupied funds" to "realize" 15.3 billion yuan of supplier funds (notes payable and accounts receivable, contract liabilities, etc.). A rough calculation shows that the net value of upstream and downstream funds is 14.2 billion yuan. It is regarded as the main source of monetary funds reserves.

Looking at Longi Green Energy, it recorded a super cash reserve of 57.3 billion yuan against the backdrop of a fixed asset investment of 37.7 billion yuan. With interest-bearing liabilities of more than 20 billion yuan, it recorded a significant negative interest expense.

Longi Green Energy's financial expenses over the years:

Follow suit.

Longi Green Energy's ultra-high upstream and downstream funding model has been learned and imitated by other integrated enterprises, becoming the main source of excess cash reserves for the current leading integrated enterprises.

Of course, having a strong ability to occupy funds upstream and downstream indicates that the company is more competitive and proactive. Otherwise, how could you possibly put so much money on the upstream and downstream?

Secondly, the difference in the ability of upstream and downstream to occupy funds is also a focus of analysis.

Different companies have different businesses and different competitive capabilities. We need to analyze the impact of upstream and downstream funds on future monetary capital reserves, and also statically analyze the differences in upstream and downstream fund structures and capabilities.

For example, we cannot simply say that whoever has the largest upstream and downstream funds is the most competitive. We need to look at the upstream and downstream funds accounted for as much as the shipment business data. Secondly, there are obvious differences in the ability to occupy funds among different businesses.

Finally, we cannot just look at the simple data of the debt-to-asset ratio, we need to analyze the composition and differences of the debt-to-asset ratio. If a company has low monetary fund reserves due to insufficient upstream and downstream borrowing capacity, but high interest-bearing liabilities, it does not mean that its debt-to-asset ratio is optimal.

02

Look at the financial strengths and weaknesses of each company through the balance sheet

We will review the balance sheet status of each company one by one in the order of the table to pave the way for the industry analysis later. We will focus on common problems later, and will not go into details about individual case analysis.

JinkoSolar:The upstream and downstream have high fund-occupancy capacity, and the net value is slightly higher than the monetary fund reserve

Notes receivable and accounts receivable reached 25.2 billion, ranking first in the photovoltaic industry, more than 1 times that of Longi Green Energy and 160% that of JA Solar. The pressure of notes receivable and accounts receivable is relatively high.

Bills payable and accounts receivable reached 50.7 billion, ranking first in the photovoltaic industry. This capital occupation capacity exceeded that of Longi Green Energy, which is expected to be due to more business. Therefore, a rough calculation shows that the actual net value of upstream and downstream capital occupation is 27.6 billion, slightly higher than the monetary fund reserves (24.8 billion). If the upstream and downstream capital occupation capacity is insufficient, cash reserves will be tight.

Other interest-bearing liabilities and fixed assets are in a satisfactory condition.

LONGi Green Energy:Lower interest-bearing debt and stronger monetary reserves

Longi Green Energy's short-term loans are 100 million, which can be ignored. Long-term loans are 11 billion.

Although Longi Green Energy's module shipment ranking has continued to decline, its contract liabilities are still as high as 10.8 billion, ranking first in the industry, significantly higher than the 6.9 billion of the second-ranked JinkoSolar.

Longi Green Energy's bills receivable and accounts receivable are among the best among integrated leading enterprises. Bills payable and accounts receivable are 40.4 billion. The net value of upstream and downstream funds is about 37.4 billion, which is lower than the 57.3 billion in monetary funds reserves, and the risk control ability is relatively strong.

Although Longi Green Energy's financial situation appears to be good, there are still financial risks caused by low operating rates (the market share of module and silicon wafer shipments continues to decline), which may be the biggest risk point.

JA Solar Technology:Known as Xiao Longji, its financial situation is quite satisfactory

JA Solar's short-term liabilities and long-term loans are both at the middle level of the industry, and its inventory level is the best among integrated leading companies. The net value of upstream and downstream funds is 17.83 billion, slightly higher than the 15 billion in monetary reserves.

However, JA Solar's fixed assets are 42.6 billion, ranking first among the four photovoltaic integration giants, and occupying a large amount of funds. However, whether the yield and cost advantages brought by JA Solar's late N-type capacity expansion can be restored remains to be solved, and its latest disclosed asset-liability structure also shows a significant widening sign.

Tongwei Shares:The lowest debt-to-asset ratio depends entirely on “cost competitiveness”

Tongwei shares' long-term amount reached 41.6 billion, and short-term loans were 187 million, which were relatively controllable. In addition, Tongwei shares' fixed assets reached 66.9 billion.

Tongwei's overall debt-to-asset ratio is only 59.27%, the lowest among integrated leading enterprises. In essence, this is due to relatively low upstream and downstream funds and inventory, which reflects its unique industrial chain value. In terms of debt disposal, it is largely supported by its position of "the lowest cost in the universe".

TCL Central:Financial pressure is high and monetary reserves are low

TCL Zhonghuan's long-term loans reached 36.3 billion yuan. Short-term loans were 250 million yuan. Cash and cash equivalents were only 7.85 billion yuan, the lowest among photovoltaic giants. The net value of upstream and downstream funds was slightly higher than the cash and cash reserves. Financial pressure, whether it was cash and cash reserves or long-term loans, was high.

Fixed assets amounted to 54.3 billion.

Hongyuan Green Energy:Low interest-bearing debt, high upstream and downstream account balance

Hongyuan Green Energy is a typical representative of vertical integration of third- and fourth-tier photovoltaic enterprises. It has also planned a huge integrated production capacity involving all aspects of the main materials industry.

Hongyuan Green Energy's short-term and long-term loans were only 1.5 billion. Notes receivable and accounts receivable were 470 million. However, its accounts payable reached 14.6 billion, contract liabilities were 690 million, and the net value of upstream and downstream funds reached 14.17 billion, far exceeding the 6.9 billion in monetary funds reserves.

Hongyuan Green Energy is carrying out large-scale vertically integrated production capacity construction, which may increase the scale of interest-bearing liabilities. If the large upstream and downstream funds are taken into consideration, the invisible pressure is also not small.

03

Competitive landscape from the perspective of balance sheet

Based on the above three paragraphs, we are now ready to make our judgment on the competitive landscape of the photovoltaic industry.

Based on the above, we draw the following conclusions:

1. Excess cash reserves mainly come from upstream and downstream funds. Be alert to the risk of debt spirals caused by huge triangular debts.

Leading photovoltaic companies, especially integrated leading companies, rely on their advantages in the industrial chain and supply chain to occupy a large amount of upstream and downstream funds and become the main source of monetary funds, providing strong ammunition support for strengthening internal circulation.

But we know that during the expansion period of the industry, upstream and downstream companies sacrificed "advance payment" for the sake of their own business development and achieved the giants' appropriation of funds. However, the industry is facing a sharp downward period, and upstream and downstream companies are facing greater financial pressure. How long can the "business model" of upstream and downstream appropriation of funds be maintained?

Perhaps only truly competitive companies can maintain such a model, but they will also be affected by Big Beta. In particular, the sharp drop in component prices will also significantly reduce the amount of funds they occupy.

The upstream and downstream companies occupy too much funds, forming triangular debts. Once one party encounters a debt crisis, it may cause a domino effect, impacting the monetary reserves and even cash flow of leading photovoltaic companies.

2. "Excessive" monetary reserves will significantly shorten the industry competition cycle

We know that the main reasons for the vicious competition in the photovoltaic industry chain, especially the main material industry chain, are the following two points:

Excess cash reserves of major companies;

High fixed asset investment in the main materials segment.

High fixed asset investment will only lead to a significant reduction in production or even a shutdown if it continues to lose cash costs. In order to maintain market share, some companies are willing to use their sufficient cash reserves to maintain a high operating rate even when they lose cash costs.

After the "overly virtual" monetary reserves are squeezed out, it will help to significantly shorten the industry's competition cycle and structure.

3. Some integrated giants face certain financial risks

We once believed that second-, third-, and fourth-tier photovoltaic main material companies faced the risk of a large number of bankruptcies. However, after we dug deep into the balance sheet structure of leading photovoltaic companies, we found that some of the leading companies also faced serious balance sheet problems.

4. Most leading companies no longer have the financial basis for further substantial capacity expansion

Although the overall debt-to-asset ratio of photovoltaic companies mostly remains around 60%, it also includes a large amount of debt formed by upstream and downstream funds, resulting in the actual interest-bearing debt being still low.

However, we emphasize that the main photovoltaic materials are currently facing severe risk of losses, and some companies even have annualized losses of tens of billions or even hundreds of billions.

Moreover, the triangular debt pressure caused by upstream and downstream funds may accelerate the clearance of industry debts, further compress the balance sheet structure, and inhibit expansion.

Currently, the cash reserves of most leading photovoltaic companies are not enough to fully cope with triangular debts and loss-making investments, and they are unable to launch a new round of expansion.

In summary, we believe that the industry competition cycle will not be short, but due to the risk of deterioration of cash reserves in the later stage, it may lead to a reorganization of the competitive landscape among companies.

At the same time, we also hope that all sectors and industrial policies can maintain a higher tolerance for this absolutely new productivity industry. From a longer-term perspective, each cycle of clearing is both inevitable and an important process for reshaping the core capabilities of the industry.