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Strictly speaking, Gantanhao was an outsider and a layman, but he could clearly feel the solemn atmosphere before the war.

All day today, various photovoltaic groups have been discussing Tongwei's acquisition of Runyang - whether the valuation is reasonable, whether the transaction structure is scientifically designed, what impact it will have on both parties and stakeholders, etc.

These are of course very important, after all, it is the first merger and acquisition case in the history of photovoltaic industry. But more importantly, what far-reaching impact will this merger and acquisition have on the industry after it is actually completed? I believe that because of this incident, some photovoltaic industry leaders may have slept very late last night.

Today, Gantanhao also heard a rumor - it is said that CATL also participated in the bidding for the Runyang project, bidding 40 small targets. What has CATL done to the lithium battery industry? 40% of the market and more than half of the profits belong to him. Of course, whether CATL is involved is just a rumor and has not been confirmed.

Sometimes the facts we see are not the whole truth, even including the current round of photovoltaic reshuffle we are experiencing.

In this game, what roles do enterprises, governments, investment institutions, etc. play? When will the game end? Who will be the final winner and who will be eliminated?

Take this merger case for example. To what extent will Tongwei, after absorbing and merging Runyang, break the current balance among leading enterprises? Will the industry competition pattern be rewritten? What do JinkoSolar, Trina Solar, JA Solar, and Longi think about this?

01 Today's choice determines the fate of the bosses tomorrow

In addition to the expansion to the Middle East, the patent war and this merger, as far as Gantanhao knows, there are other big things that will happen in the industry in the near future. These are the characteristics of an industry undergoing drastic changes and evolution.

What are the leading companies thinking about in the current competitive landscape of the photovoltaic industry? Are they just seeking to protect themselves? If they really had this kind of weak mentality, Tongwei, GCL-Poly, Longi, JinkoSolar, Trina Solar, and JA Solar would not have survived the 20 years of trials and tribulations and survived to this day.

Don’t waste any cycle, don’t waste any crisis. Trying every possible way to control the battlefield situation and development direction is probably what the leading companies really think. Since ancient times, the winner has always been the one who shaped the rules of the game.

So, to be more specific, what will the leading companies do now that the entire industry chain is in a state of severe involution? Will they dig deep holes, store up food, and slowly become king to preserve their strength? Will they form alliances and retreat by advancing, so as to survive in troubled times? Or will they break the involution with involution, stop the war with war, and defeat the killing with killing?

Regarding the above, some leading companies have actually clearly expressed their attitudes through operational strategies such as operating rate, investment strategies such as production expansion rhythm, R&D strategies such as technology routes, globalization strategies such as the Middle East, North America and Southeast Asia, and financial strategies such as increasing loans and upstream and downstream deposits to maintain cash.

What best reflects the business philosophy is, of course, the operating rate.

The entire industry is already making losses, so why are the operating rates of Tongwei Co., Ltd. and TCL Zhonghuan both over 100%, while other silicon material and silicon wafer peers have lowered their operating rates?

There is no right or wrong in everything, only suitable or unsuitable. To roll, you need to have the strength to roll, to endure, you need to have the capital to endure, and to survive, you need to have the psychological quality to survive.

However, you reap what you sow. The future market and competition landscape will be determined by every strategic choice we make today.

02Tongwei's operating rate hides a shocking secret

Yesterday, Gantanhao published an article about the production capacity utilization rates of various links of Tongwei Co., Ltd. in August this year: polysilicon 113%, silicon wafers 136%, battery cells 145%, and modules 72%.

Many people do not believe this set of data. Of course, some people are more serious, saying how can the operating rate exceed 100%? In fact, overproduction occurs all the time in a good year for photovoltaics. Capacity design and capacity utilization are two different things. For silicon materials, it can be achieved by giving up normal maintenance and working overtime. No more explanation is needed.

When I first saw this set of data, I was a little skeptical - is Tongwei crazy? However, this is indeed the result of a third-party investigation.

In comparison, in August this year, the operating rate of silicon material company Xinte Energy was only 25%, the operating rate of Longi Green Energy's silicon wafers was 57%, and the operating rate of JA Solar's battery cells was 74%.

According to the data, taking Tongwei Yongxiang polysilicon as an example, the current annualized production capacity is 235,000 tons, the monthly production capacity in August was 19,600 tons, the monthly output is expected to be 22,300 tons, and the operating rate is 113%.

Also in August, the total polysilicon industry capacity (including overseas) was 93,200 tons, and the monthly production was expected to be 59,800 tons, with an operating rate of only 64%. Among the silicon material companies with a monthly output of more than 2,000 tons, the one with the closest operating rate to Tongwei was Asia Silicon, which was 76%.

As a result, Tongwei's output accounted for 37.3% of the industry in August this year, compared with only 23.4% in January this year.

So, what if Runyang’s silicon material production capacity is added next?

According to statistics from a third-party agency, Runyang currently has an annual production capacity of 30,000 tons of silicon materials, with a monthly output of 1,600 tons. Of course, Tongwei Co., Ltd. disclosed in its announcement yesterday that Runyang has built a polysilicon production capacity of 130,000 tons.

Even if we take this 30,000 tons as an example, Tongwei can help it return to normal levels, and the monthly output will be 2,500 tons. Then, the monthly output of Yongxiang + Runyang will reach 24,800 tons, accounting for 41.5% of the total output of the entire industry!

In any industry, if a company has such a high market share, its voice will be crucial and unquestionable.

However, such a high operating rate, at a time when silicon material prices are so low, may mean sacrificing profits in exchange for market share. Can Tongwei afford the loss?

03How Tongwei promotes the reshuffle of silicon materials

The weekly silicon material prices that we ordinary people see actually have a completely different pain index for each silicon material company.

According to data released by the Silicon Branch of the China Nonferrous Metals Industry Association on August 7, the average market price of N-type materials was 40,400 yuan/ton, up 1% from the previous month. The average price of N-type granular silicon was 36,700 yuan/ton, ranking second among all varieties, and also up 0.55% from the previous month.

These are the only two varieties among the five varieties whose prices have increased month-on-month. The title of this weekly review of the Silicon Industry Branch is: "Consensus reached on the market bottom, prices rebounded slightly in the short term." At present, the silicon material giants that can sweep the entire industry are actually Tongwei and GCL.

Taking N-type rod silicon as an example, what does the market sales price of 40,200 yuan/ton (tax included, tax rate is 13%) mean to Tongwei Co., Ltd.

Tongwei Co., Ltd.'s 2023 annual report disclosed:

"In the photovoltaic new energy sector, the company has formed an annual production capacity of 450,000 tons of high-purity silicon, with 400,000 tons of projects under construction. The investment cost per 10,000 tons has dropped to 500 million yuan, and various consumption indicators have continued to decline. During the reporting period,Average production costIt has dropped to less than 42,000 yuan per ton.”

The cost of silicon materials has dropped significantly this year. Public information shows that the price of industrial silicon per ton has dropped from 15,000 yuan/ton in January this year to the current 9,860 yuan/ton. The silicon consumption of industrial silicon powder in the rod-shaped silicon industry is between 1.07-1.09kg/Si-kg. Based on this calculation, the cost of industrial silicon powder per ton of silicon material has dropped by more than 5,000 yuan per ton in more than half a year.

In other words, based on the spot price of silicon materials and industrial silicon powder, Gantanhao speculates that Tongwei's silicon material business may not lose money! Even if we take a step back, when many new players are losing money and reducing their operating rates, Tongwei's silicon material business may only be at the break-even point. Even if we take a step back, even if Tongwei now loses two to three thousand yuan for every ton of silicon materials sold, then with a monthly output of more than 20,000 tons, it will only lose 40 to 50 million yuan a month, and only 500 to 600 million yuan a year. How big of a deal is this for Tongwei?

Let's assume that Tongwei Co., Ltd., with its good cash reserves and nearly 40% market share, can keep the above market status unchanged for two years. How many new players will be able to survive?

What is even more frightening is that GCL's granular silicon has a more obvious cost advantage. If GCL also maintains the current market price level, with the market share of the two silicon material giants, who can shake and reverse the market pattern?

So, when we see these clearly, we have actually seen the fate of many companies.

According to a well-known investment institution, Qinghai Lihao's current financial situation is not optimistic. Of course, there are many silicon material companies that are worse than Lihao.

Lihao's operating rate is still good, and another old player, East Hope, has an annual production capacity of more than 80,000 tons, but its current operating rate has dropped to 5%! Some people say that East Hope, which has its own power plant and low electricity costs, is investing heavily in technical transformation and upgrading of N-type materials, vowing to fight Tongwei to the end. East Hope is strong, and it is too early to think that it will withdraw now.

Xinte Energy actually has nothing to worry about. Major shareholder TBEA owns two open-pit coal mines in Zhundong Coalfield, the largest integrated coalfield in my country, with reserves of up to 12 billion tons. With its own power plant, Xinte Energy is unstoppable, although its current operating rate is only 25%. Someone close to Xinte said that TBEA Group has reached a consensus, and the whole company is united to protect Xinte! Of course, Daquan Energy has nothing to worry about - it is the photovoltaic company with the lowest debt ratio among all photovoltaic companies, only 12%!

The remaining companies will probably need to be carefully analyzed one by one. Recently, Gantanhao interviewed a person in charge of a leading battery company. She had just visited silicon material companies in Xinjiang and wanted to stock up on silicon materials while the price was low. After all, many silicon material companies are selling at a loss to survive. According to this entrepreneur, the feelings of various silicon companies are indeed very fierce, but they have to survive even if they have to sell everything they have, even if they perish together with Tongwei.

In fact, as long as there is an advantage in cost, such as an advantage in electricity costs, or an advantage in capital costs, you can still hold on. But these are just ifs. In the competition between enterprises, the victory or defeat is often a matter of millimeters. You can only watch yourself being swept away, but you are powerless.

In addition to Tongwei, which has expanded production the most aggressively, several old players such as GCL, Daquan, and Xinte have also expanded production aggressively. Some of them are to further increase their market share, while others are just to maintain their existing market share. The silicon material reshuffle will definitely result in a large number of players being eliminated. It is estimated that a large part of these cleared production capacities may belong to Tongwei and GCL.

In the future, the gap between the leading silicon material companies will definitely widen.

04An industry leader is the ecosystem of an industry

In any industry, if the leader has nearly 40% of the market share, it basically has the final say. The leader often determines the ecology of an industry. CATL determines the ecology of the lithium battery industry. For example, in the photovoltaic film industry, companies like Foster have the final say.

A chairman of a listed film company told Gantanhao that in this industry, with Foster there, everyone can eat well but also not starve. Therefore, when giants like Oriental Yuhong are eyeing the film industry and want to get a piece of the pie, Foster immediately cuts prices to scare those who are preparing to enter, and they will definitely lose money as soon as they go into production - in this industry, when Foster stays near the break-even point, most companies in the industry have already lost money or even huge losses.

Similarly, when Foster's maintains a slim profit, other companies may struggle on the line of life and death, not starving to death, but also unable to develop. Therefore, over the years, Foster's has been maintaining a dynamic balance between a safe market share and reasonable profits.

A similar case happened in the photovoltaic glass industry. With the existence of the two giants, Xinyi and Fuyao, a group of small brothers are doing well. Although the photovoltaic industry is very competitive, it has not been involved in the glass industry, which is subject to strict production capacity approval. However, when a giant like Cao Dewang of Fuyao Glass wanted to break in, the two giants immediately joined forces and quickly blocked the "predator" by expanding production and lowering prices. Therefore, a group of photovoltaic glass companies should thank these two bosses: they determine the ecology of the photovoltaic glass industry.

Does it feel a bit like the animal world? Indeed, every grassland has its own lion king. In the field of silicon materials, Tongwei is the lion king.

Compared with other silicon material giants, Tongwei has another unique advantage: it is also the world's leading battery cell manufacturer. The acquisition of Runyang will make its leading position in battery cells even more unbreakable.

In order to consolidate its advantage in battery cells, Tongwei even went all out to make modules. Gantanhao speculates that if the module leader had not taken the lead in integrating and making batteries, Tongwei would not have made modules. Business competition is a give-and-take.

It is also worth mentioning that the acquisition, including Runyang's 1.8GW module production capacity in the United States, is about to be completed and put into production. This is undoubtedly important for Tongwei's global capabilities - it got the "green card" in one step.

With the world's largest cell production capacity, it has the first say in upstream silicon wafer companies. Especially at the moment, the overcapacity of silicon wafers is almost the most serious, and the operating conditions of silicon wafer companies are almost the worst among the four major links. Moreover, this situation will not even show signs of improvement in the next few years. The reason is actually very simple. In the last round of photovoltaic cycle, silicon wafers expanded production the fastest and made money the fastest, so everyone expanded desperately.

The core reason why silicon wafers are in such a bad state is due to the diffusion of technology. If TCL Zhonghuan and Longi Green Energy can firmly control the diamond wire technology and the manufacturers of crystal pulling equipment and slicing equipment, the days of the two leading silicon wafer companies should be the best.

The result we see is that the excessive pursuit of profits by the two companies and Longi's integration have forced other component giants to get involved in integration and silicon wafers, and painstakingly supported a number of silicon wafer companies such as Hongyuan Green Energy. After that, a large number of silicon wafer companies such as Gospark, Yuze, and Shuangliang emerged, and the silicon wafer moat has completely collapsed since then!

Therefore, when we see that TCL Zhonghuan's operating rate remained at 103% in July and August this year, we can understand Shen Haoping's intention. As long as TCL Zhonghuan remains near the break-even point or has a small profit, it may mean losses for most silicon wafer companies.

However, silicon wafers and silicon materials are completely different, with different capabilities to "intercept" profits from the industrial chain and different market concentrations. It is precisely because of the integration in recent years that, in addition to a large number of silicon wafer companies, leading component companies also have huge silicon wafer production capacity. In the silicon wafer segment, TCL Zhonghuan and Longi Green Energy are no longer as influential as before.

Another important reason is that TCL Zhonghuan is not strong enough to sustain its silicon wafer business. At least until now, no silicon wafer company has withdrawn, and new players like Gospark are doing well. However, TCL Zhonghuan itself is already somewhat unable to cope with the situation.

Gantanhao believes that there may be another reason that silicon wafer production capacity cannot be cleared by high operating rates - the start and stop of rod drawing capacity is more troublesome, and the slicing capacity can be started and stopped at any time, which is completely different from the start and stop cost of silicon materials. Even if it is stopped, companies like Gaoce can be asked to slice for you.

Silicon materials are the key to the photovoltaic industry. From the perspective of past history, the industry reshuffle will not end until the silicon materials are reshuffled. Therefore, everyone has different feelings and perceptions about this photovoltaic winter. Perhaps, in the eyes of lion kings like Tongwei, they have seen when this cycle will end and when it will start again from the changes in the silicon material market. Chairman Liu said last year that this cycle will not be that long.