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Text｜"Chinese Entrepreneurs" reporter Pan Juntian

Editor: Zhang Hao

Source of header image｜Visual China

Xiao Liu is a little nervous. He is an engineer at TCL Zhonghuan Tianjin Base. Two weeks ago, the sudden resignation of Shen Haoping, the CEO of this silicon giant, began to have an impact internally.

According to him,Currently, the company has begun to suspend work at some bases, but the news has not been confirmed by TCL Central.Public data shows that the company's silicon wafer business operating rate remained at around 95% in the first half of this year, while its old rival Longi Green Energy was only 50%.

The industry generally believes that the core reason why company veteran Shen Haoping stepped down from the position of CEO and only retained the position of vice chairman is that the full production strategy was too "costly".In the first half of the year, TCL Zhonghuan did regain some market share, rising from 24% to 30%, but due to the low pricing of silicon wafers, it suffered losses of approximately 2.9 billion to 3.2 billion yuan.

Xiao Liu has not had a day off since he started working there. His base has been operating at full capacity, but if he maintains the same operating rate as his competitors, it means that nearly half of the production capacity will be shut down. He also began to worry that his base would also shut down, leading to unpaid leave or even layoffs.

Xue Xin, director of the board office of TCL Zhonghuan, responded to "China Entrepreneur": The overall operation of the company was normal before and after the resignation of the general manager (referring to Shen Haoping). Regarding the possible strategic changes after TCL Chairman Li Dongsheng took over, Xue Xin said, "Mr. Li is now the CEO of the company. From the perspective of resources and experience, he can empower TCL Zhonghuan's overseas business." TCL's home appliance business, which started with it, has overseas revenue accounting for more than 60%, and the photovoltaic industry has also been gaining momentum in recent years.

"Li Dongsheng is a pure 'businessman'. The first step he will take after taking office will most likely be to control losses. However, the base has been operating at full production and sales, and this currently appears to be the biggest point of loss."Xiao Liu told reporters.

The company was formerly known as Tianjin Semiconductor Materials Factory. In 2020, TCL spent 10.9 billion yuan to complete the acquisition and changed its name to "TCL Zhonghuan". After the acquisition, TCL did not make large-scale changes to the management. General Manager Shen Haoping, who took office in 2007, still dominates the company's affairs.

TCL Zhonghuan's "full production and full sales" business strategy this year has been controversial in the industry. Xue Xin told reporters that the strategy for the first and second quarters of this year is to further lower silicon wafer prices through high operating rates. TCL Zhonghuan will suffer less losses than other companies because of its lower production costs. Slowly, the market will be "cleared" and TCL Zhonghuan will be able to gain a higher market share.

Longi Green Energy, a direct competitor in the silicon wafer business, has adopted the opposite strategy. "The silicon wafer segment has reached a loss-making state, and we have some requirements on price and profitability," said Zhong Baoshen, chairman of Longi Green Energy.

The direct result is that both companies are losing money. Longi Green Energy is losing more in the downstream photovoltaic module business, and it also has "ammunition" stored in the warehouse: the BC battery (back contact battery) launched last year and the new silicon wafer - Terai silicon wafer launched this year have not yet reached the stage of large-scale production, and it also has cross-industry business such as hydrogen energy. However, TCL Zhonghuan can only stick to the silicon wafer that has already suffered huge losses.

Longi Green Energy founders Li Zhenguo and Shen Haoping both graduated from the Department of Physics at Lanzhou University, and even had the same experience after graduation. This year and next year are recognized by the industry as the "decisive moment", and the battle is in full swing, but Shen Haoping still withdrew.

Vitality and crisis

In 1983, after graduating from university, Shen Haoping entered Tianjin Semiconductor Materials Factory to focus on technology. He started from the process flow. At that time, the high-purity single-crystal silicon produced was not used for photovoltaic panels, but mainly for the semiconductor field. The following year, he innovated the "zone melting method single crystal technology". This technology, which has been used for more than 30 years, established TCL Zhonghuan's leading position in the domestic crystalline silicon field.

If he had not switched to management, Shen Haoping might have become a brilliant person in the academic field. But because he could not pay his employees in the 1990s, he began to figure out on his own, buying equipment and selling products to "support his brothers in the project." This also brought him into contact with the photovoltaic industry, and after taking office as the company's general manager in 2007, he decided to fully switch from the semiconductor material field to the photovoltaic silicon wafer field.

"Making a firm decision to expand and strengthen the photovoltaic industry is the only way for our company to survive marginalization under the basic situation of rapid development of global silicon materials."Shen Haoping once mentioned this in an interview.

However, the photovoltaic industry soon faced a crisis. In 2012, Europe and the United States successively launched "double anti-dumping and anti-subsidy" policies against the domestic photovoltaic industry. As a result, companies such as Wuxi Suntech went bankrupt and reorganized. Later, Zhonghuan Semiconductor also lost 100 million yuan in 2012 due to this wave of industry adjustments.

Shen Haoping led his team out of the industry cycle by producing better and cheaper products, reducing losses and seizing market share. After the market reshuffle, only Zhonghuan Semiconductor and Longi Silicon Wafers remained. At their peak, the market share of both companies was around 35%. Although Shen Haoping and Li Zhenguo had a good personal relationship, the two old rivals have been competing in the market for more than ten years.

After seven or eight years, the duopoly was finally broken. Starting in 2019, downstream photovoltaic component companies represented by JinkoSolar began to integrate upstream. Their goal was clear: to control the entire production process from raw materials to photovoltaic panels. Because at that point, LONGi Green Energy had already achieved this state, thus gaining differentiated market competitiveness.

At the same time, with the influx of funds, many silicon wafer companies have sprung up like mushrooms after a rain.

For example, Gogreen Solar, a star company in the industry, was established in 2019 and built a 30GW (gigawatt, power unit) silicon wafer production capacity in just three years, which is equivalent to the total production capacity of TCL Zhonghuan at the end of 2019. In order to grab the market, Gogreen Solar directly adopted the method of "locking quantity but not price" and signed a three-year agreement with Tongwei Co., Ltd., Runyang Co., Ltd., Chint Group and other companies from 2023 to 2025, with an order of about 181GW, an average of 60GW per year. TCL Zhonghuan's sales last year were about 114GW.

A new company directly challenged the leading enterprises. This was the market situation at that time. TCL Zhonghuan was conservative during this period. Before being acquired, it did not expand its business on a large scale. It only started to invest in silicon materials, batteries and components projects afterwards, and also tried to expand in an "integrated" way.

Many insiders of TCL Zhonghuan told reporters that in the original state-owned enterprise stage, the decision-making process was complicated and took a long time. An investment of over 100 million yuan took two to three years to complete, and once it was completed, it was considered a "backward project". After being transferred to a private enterprise, the same project might only take one or two months. This also explains, to some extent, the reason why Shen Haoping is "conservative" and why he is trying so hard to introduce TCL, a cross-industry giant.

Facing doubts, Shen Haoping repeatedly said at the performance meeting: "Respecting division of labor is a basic economic law and the biggest advantage in future development." "In the future, the dominance of the global photovoltaic industry will shift from capital to engineers." "When the price cycle is at a high level or rising, the role of business and capital may lead to a phenomenon of balancing or counteracting the technology cycle, but it is impossible to use business logic and industry historical layout logic to counter the basic laws of the industry."......

However, as a result of the reckless market expansion in those years, TCL Zhonghuan quickly lost its market share in the silicon wafer segment, which fell back to the 20% range.

Old experience fails

This is obviously not what Li Dongsheng wants to see.

Starting from the 2019 fiscal year, the annual reports released by TCL Zhonghuan all begin with Li Dongsheng's speech as the chairman. In last year's annual report released in April this year, he first talked about TCL Zhonghuan's strategic goals: to be the world's No. 1 in silicon wafer market share, the world's No. 1 in comprehensive strength, and to become a global Tier 1 high-efficiency module supplier (the list of excellent photovoltaic module manufacturers selected by Bloomberg New Energy Finance is an important basis for customers to purchase photovoltaic modules).

This year should have been an opportunity for TCL Zhonghuan. From the second half of last year to the first half of this year, the photovoltaic industry has entered a period of adjustment again. Because the price war lasted for many days, the entire industry chain was facing losses, and the silicon wafer segment was no exception. In the first half of last year, TCL Zhonghuan delivered a brilliant report - net profit exceeded 5 billion yuan, and in the second half of last year, it directly lost 1.6 billion yuan.

Shen Haoping's strategy is the same as it was 12 years ago, which is to ensure the cost advantage of silicon wafers, forcing other manufacturers to suffer greater losses so that they can eventually take over the market.“This stems from his previous experience of traveling through the photovoltaic cycle.”A person close to TCL Central told reporters.

Xue Xin introduced that TCL Zhonghuan's silicon wafer cost per W (watt, power unit) is 0.03 yuan ahead of the industry. Calculated at full capacity, TCL has nearly 6 billion yuan of profit margin. "On the one hand, our silicon wafers are larger, so we can use thinner diamond wires with less loss; on the other hand, our intelligent manufacturing system is leading, and the product yield under strict standards is 98%, which is 0.5% to 2% higher than others." He said.

According to the annual report, TCL Zhonghuan's silicon wafer production capacity will reach 183GW by the end of 2023, equivalent to the sum of the third and fourth place. Although Longi Green Energy, which ranks second, also has a silicon wafer production capacity of 170GW, two-thirds of it will be used for its downstream battery and component businesses.

Under the offensive of TCL Zhonghuan's high operating rate, even though the prices of downstream photovoltaic modules and batteries have gradually stabilized, the price of silicon wafers is still falling.

Xue Xin detailed the internal thinking of TCL Zhonghuan in choosing this strategy. "The photovoltaic industry has three lines: one is called the full cost line, one is called the cash cost line, and one is called the BOM (raw material) cost line. When the product price is below the full cost, the company will reduce the operating rate, because the more production, the more losses. However, if these factories do not start production, the equipment will naturally depreciate, and employees' wages must be paid and bank loans must be repaid. It is a dilemma to start production or not, and they will eventually be cleared by the market."

Xue Xin said that this is "giving red envelopes" to downstream companies, and the industry is coming to TCL Zhonghuan to buy silicon wafers. In June this year, TCL Zhonghuan's silicon wafer market share has risen from 23.4% to 30%.

"Many companies that originally engaged in photovoltaic integration thought that their silicon wafer costs were lower. Now that their own silicon wafer factories have stopped production, they have come to buy our silicon wafers. Their own factories cannot produce as cheaply as ours, so we are producing and selling at full capacity," said Xiao Liu.

TCL Zhonghuan's "big red envelope" has a fatal impact on other second- and third-tier silicon wafer companies. According to CITIC Securities data, Longi Green Energy, TCL Zhonghuan and Hongyuan Green Energy lost 0.01 yuan per watt of silicon wafer in the first quarter of this year, and Shuangliang Energy lost 0.02 yuan per watt. According to the production capacity of the two companies, the losses are close to 300 million yuan. The actual losses are even greater. Hongyuan Green Energy's financial report shows that it lost about 1.4 billion yuan in the first quarter of this year.

Xue Xin told reporters that such a high operating rate will indeed affect immediate profits, but the company's judgment criteria are based on three parameters: sales volume, operating rate and profit. The optimal solution obtained after calculating these three parameters is the final choice. If the ratio of losses to market share growth is not appropriate, the high operating strategy may be stopped.

Shen Haoping's resignation put an end to the aggressive strategy of the past six months. It seems that Li Dongsheng has obviously slowed down the pace of market acquisition.

In the view of many industry practitioners, it is an unknown how much blood is left in the second- and third-tier enterprises that were supposed to be "cleared out". Some practitioners mentioned that the financing situation in each region is different. Some companies seemed to be on the verge of failure, but they survived and even got better. This must have made Shen Haoping, who was eager to take over the market, very uncomfortable.

At the last public earnings conference in May this year, he quoted a metaphor from Li Dongsheng: "Sailing freestyle racing is a circling race. When there is a tailwind, there must be a headwind. When we are facing a headwind, the engineering team and engineering spirit of TCL Zhonghuan are more powerful, and we are more competitive than when we are facing a tailwind."

Unexpectedly, the "wind" this time was still too strong for him.

Xiao Liu in this article is a pseudonym at the request of the interviewee