Hello! I'm your financial analyst friend. Today, we're going to discuss an article about the photovoltaic (PV) industry with a rather alarming title: "At Least Half of PV Companies Will Not Survive the Worst Merger and Acquisition Wave in the Next Year!"
To be honest, when you read phrases like "half of the companies will disappear" and "200 billion in losses," many non-professionals might wonder: Isn't PV a "new, high-quality productive force" that the country is strongly supporting? How could it be on the brink of collapse so quickly?
Don't worry; let's break down the complex financial terms and explain the logic behind this in plain language. This is actually a major clean-up of the industry caused by overcapacity, similar to a supermarket sale where only the cheapest and most durable products remain, and the rest have to be cleared out.
Here's my in-depth analysis of the news, divided into five key points:
1. Current Situation: The Industry Is Losing Blood – Money and People Are Leaving
First, we need to understand just how dire the PV industry's situation is. The article cites some alarming figures:
- Losses: Over the past two and a half years, the entire industry has accumulated losses of over 200 billion. Where did all that money go? It turned into inventory, bad debts, and severance payments for employees.
- Market Value Decline: The value of listed companies on the stock market has evaporated by 4.2 trillion compared to their peak. This means that investors have suffered heavy losses, and the capital market has lost confidence in PV.
- Layoffs: 300,000 people have left the industry. These are not just numbers; behind them are the livelihoods of 300,000 families.
- Stagnation in Innovation: With no profits, companies are reluctant to invest in research and development (R&D), which has been cut in half. This is a long-term concern because PV is an industry that requires continuous technological advancement.
In simple terms: It's like a once-profitable chain restaurant that suddenly finds that people no longer want to eat there, or other restaurants are cheaper. To survive, the owner tries to discount products, but the more they sell, the more they lose. In the end, they run out of money to pay employees, can't upgrade their facilities, and their stock price drops, driving investors away. The PV industry is now on the brink of a "hemorrhagic shock," with many small companies having no resources left.
2. Causes: Severe Overcapacity – 1100GW of Capacity vs. 600GW of Demand
The root cause of this situation is simple: too much production and too little demand.
The article uses a vivid metaphor: "One person is fighting for 5 bowls of rice and has to chew on the bowls as well to get full."
- Supply-Demand Imbalance: The current PV panel capacity is 1100GW, but global demand is less than 600GW. That means capacity is nearly twice as much as needed.
- Blind Expansion: Ironically, even as companies are losing money, domestic investments of over 40 billion have been made since 2025, adding another 50GW of capacity. This shows that some owners are still betting that they can outlast their competitors or are just following past trends.
- Lack of Buyout from Downstream: In the past, there were guarantees for the quantity and price of power station construction. Now, policies have changed, and power station owners realize that if PV panels are too expensive, the profits from generating electricity won't cover the costs (with an Internal Rate of Return, IRR, below 8%). So, when upstream prices rise, downstream buyers stop purchasing, breaking the price transmission chain.
In simple terms: Imagine 100 bakeries in a city, but the daily demand is only enough for 50 of them. To compete, they have to discount or even give away bread for free. The more they sell, the more they lose. In the PV industry, it's like 100 bakeries fighting for 50 customers, with more bakeries opening all the time.
3. The Merger and Acquisition Process: Not Saved by Price Hikes, but by Clearing Out and Policy
Many think that a price hike would solve the problem, but the article points out that a price hike is unsustainable until the excess capacity is eliminated.
- Price Hikes Are a False Solution: While silicon material and wafer prices have risen recently, PV panel prices haven't increased much because downstream buyers don't have the money. If prices are forced up, power stations won't build, and upstream companies will suffer even more.
- Low Operating Rates: The overall operating rate of the industry is less than 40%. That means half of the machinery is idle.
- Leading Companies (like Longi and Tongwei): Thanks to technology and overseas orders, they can maintain 50%-60% operating rates and barely survive.
- Second-Tier Companies: They only operate when they have orders; otherwise, they stop, leading to tight cash flows.
- Small and Old Companies: Their operating rates are only 8%-22%, almost dead, and they could shut down at any moment.
- Policy as a Lifesaver: On January 1, 2027, new mandatory national standards will take effect. These standards will eliminate nearly 30% of high-polluting, low-efficiency capacity.
In simple terms: It's like a marathon where the track is too narrow for everyone. The referee (policy) says, "From January 1 next year, those who run too slowly or incorrectly will be disqualified." With so many competitors, trying to hike prices together won't work because more are constantly entering the race. Only the strongest (lowest costs, best technology) will make it to the finish line.
4. Death Traps: Cash Flow Crises and Interlocking Debts
The article mentions two dangerous factors:
- Cash Flow Crises: The PV industry is heavily in debt, with total liabilities exceeding 3 trillion. Many listed companies are actually insolvent.
- Bank Cuts in Loans: Banks prefer to support successful companies, not those in trouble. During downturns, they tighten loans or even recall them, which is fatal for cash-strapped companies.
- Interlocking Debts: Suppliers, manufacturers, and power stations owe each other money. Data shows that PV companies' accounts payable (money owed to others) amount to 550 billion, growing faster than accounts receivable (money owed by others). This means large companies shift their burdens to smaller suppliers. If one company goes bankrupt, its creditors (suppliers) won't get paid, leading to a chain reaction of failures.
In simple terms: It's like a family where the father (a large company) owes the bank a lot, the mother (a supplier) owes the father a lot, and the children (downstream companies) owe the mother a lot. If the father loses his job and can't pay the bank, the bank takes away the house. The father can't pay the mother, the mother can't pay the children, and the children can't afford food. In the PV industry, many small companies are being dragged down by the debts of larger ones, often before they even meet the elimination criteria.
5. Future Trends: Accelerated Technological Change and Globalization Risks
Finally, let's look at who will survive and how the external environment will affect the industry:
- Technology Determines Survival: New technologies like BC (Back Contact) are gaining momentum, with capacity expanding rapidly (expected to exceed 100GW). Companies that master these technologies will have a competitive advantage.
- Equipment Makers Will Be Replaced: BC technology changes production processes, and old equipment and suppliers will be phased out.
- Inverter Market: Leaders like Sungrow and Deye are thriving in household energy storage and emerging markets, while some micro-inverter companies are losing money. Choosing the right focus (e.g., household storage or emerging markets) is crucial.
- Overseas Expansion Is Risky: While companies used to export abroad when domestic competition was fierce, now there are protectionist measures. For example, India has delayed localization requirements, and the EU has classified Chinese inverters as high-risk and restricted capital flows. The US imposes high tariffs on PV products exported through third countries.
In simple terms: The future PV industry will be a competitive one where only the best technologies and strategies will prevail:
1. Technology Leaders: Companies that master new technologies like BC will sell at higher prices and thrive.
2. Diversified Players: Those that focus on inverters, energy storage, or emerging markets will grow faster.
3. Overseas Expansion Is Risky: While exporting was once a solution, now there are barriers. High tariffs and restrictions from the US and EU make it more challenging.
Conclusion
The core message of this article is clear: The "golden age" of the PV industry is over, and we are in a cruel survival battle.
- Short Term (next six months to a year): Many small companies will go bankrupt, delist, or disappear. Price wars will continue, but capacity will be reduced.
- Medium Term (after 2027): With new standards, industry concentration will increase, and only the strongest companies will remain.
- Long Term: The industry will become more rational, with technology innovation and globalization as key to survival.
For individuals, if you hold PV stocks, expect greater volatility and potential delistings. If you work in the industry, be cautious of companies with high debt, low operating rates, and reliance on single markets. As an investor, focus on companies with healthy cash flows, leading technologies (like BC), and diversified overseas presence.
This merger and acquisition process is painful, but it's necessary for the industry to mature. As the article says, "A short, sharp pain is better than a long, chronic one." Only by eliminating excess capacity can the PV industry thrive.