The shift in the photovoltaic industry from killing valuation to killing performance has already begun to show signs in the fourth quarter's results.

The photovoltaic sector was once the golden track with the biggest increase in 2020-2021. Track leaders such as Longji Green Energy and Sunshine Power were born successively.

The entire industry expanded rapidly at a very exaggerated rate during the period of high growth. The crowded racetrack indicated that the competitive landscape faced the challenge of worsening, and eventually burst the bubble. Since 2022, it has been in the double pain of digesting high valuations and clearing production capacity. Simply killing valuations has made investors feel hopeless.

Last year, the sharp drop in prices in the industrial chain was the trigger for killing performance. Furthermore, under the trend of accelerated iteration of photovoltaic cell technology, a large amount of old production capacity is still facing the fate of being eliminated, increasing the burden of impairment on enterprises from a financial perspective.

According to reports, in 2023, the domestic prices of silicon, silicon wafers, cells, and modules fell as follows:

66.91% (single crystal dense material), 48.66% (M10 silicon wafer), 38.37% (G12 silicon wafer), 55.00% (P-type 182 cell), 53.75% (P-type 210 cell), 48.01% (P-type 182 monocrystalline module), 46.45% (P-type 210 monocrystalline module).

On the main chain, starting at the end of 2022, upstream silicon prices have dropped sharply, yet the expected profit recovery space for the middle and downstream has only been maintained for a quarter or two, and quickly leveled off with price cuts and order grabbing.

The massive release of silicon production capacity cannot meet industry demand. According to an analysis by Dongwu Securities, the current silicon production capacity can meet the module supply is about 535 GW, which is more than double the number of new PV installations last year.

The winning bid price for domestic components fell directly from 1.8 yuan/w at the beginning of the year to below 1 yuan/w, and is said to have fallen below the cost line.

The gap between supply and demand is so large, which shows that many companies in the industry are clearly rushing to make orders and have no choice but to suspend part of production capacity. Since the second half of the year, the average operating rate of the industry has only been around 50%, and slightly better leading companies have remained at 70%-80%.

Leading performance in the fourth quarter was affected quite a bit, not to mention small second-tier and third-tier factories. Confirmation from the bottom of the industry is that it is only necessary to wait until production capacity is gradually cleared, the loss is over, and demand will push prices upward again.

If a sharp expansion of recruitment is a clear sign of the expansion of the industry, then production cuts and layoffs are signs that the industry should be shrinking.

At the end of last year, rumor spread in the industry about major photovoltaic layoffs and production cuts. According to the Internet, Longji Green Energy plans to lay off 10,000 people, and Aixu Co., Ltd. is rumored to cut production by 30%.

The market is mentally prepared for a decline in performance. This can even be predicted during the major expansion of integrated production capacity+cross-border photovoltaics in 2022. The real concern is whether the rate of production capacity clearance is accelerating now under the premise of capital withdrawal and the slowdown in IPOs, and when it can stabilize.

Remember that PV “flashback” at the end of last year was driven by the rise and fall of many leading companies, but it only lasted less than a week and then took a sharp turn.

The market created fundamentals. That is, when some financial behavior causes large fluctuations in a certain sector, and it seems that it is about to break the downward trend that has been going down until now, a fundamental logic can always be found within the industry.

At the time, I used the price bottom to write the article. The price of the package price was already close to the bottom, and it is less and less likely that it will continue to drop drastically. Second, overseas shipping crises may slow down the normal delivery rate of PV export products, which will help European countries to further speed up their warehousing.

However, the market has no continuous confidence in fundamental restoration. The main factors responsible for the recent sharp turn in the market are due to two aspects:

One is that in the annual performance forecasts announced by industry companies, there is quite a bit of information implying a decline in fourth quarter results, including leading companies in various sectors, which led to the rapid handover of the gains accumulated in the previous two weeks.

Faced with a sharp drop in silicon wafer prices, it is difficult for even leading companies like Central to survive. Another silicon wafer company, Shuangliang Energy, fell 82%-90% month-on-month in the fourth quarter.

Areas with high scarcity, such as quartz crucibles upstream of silicon wafers, still had excellent price increases in the first three quarters of last year. The large quartz crucibles produced by the leading company, Oujing Technology, are used to meet the demand for large downstream silicon wafers, and the competitive pattern is more stable than downstream, but the single season was affected by a decrease in downstream operating rates, and the month-on-month ratio was also not as good as in the third quarter.

Even Jingke Energy, which relied on N-type TopCon to regain the module throne this year, saw a certain impact on the company's annual results in the fourth quarter. Compared with the profit growth rate of nearly 300% in the previous three quarters, the fourth quarter results declined markedly, with a month-on-month decline of more than 50%.

The decline in Jinko's profit in the fourth quarter was not an accident; it is also in line with the current situation where photovoltaic companies made a big effort to grab orders in the fourth quarter.

As TopCon's production capacity is released in large quantities, the use of N-type in terrestrial power plant tenders has increased, and competition has become more intense, and only then will the premium of N-type modules over P-type gradually shrink.

The dividend period of the new technology was squeezed for a very short time by insane production capacity. It was as if everyone was scrambling to climb the life raft in order not to be drowned. More and more people lined up, they lost order, and in the end, they might even overturn the boat together.

The fourth quarter is the peak season for traditional domestic installations. According to the installed capacity data released by the National Energy Administration, the number of new PV installations reached 51.87 GW in December, bringing the total number of new PV installations to 216.88GW in 2023, an increase of 148.12% over the previous year.

Looking back at the forecast of the China Photovoltaic Industry Association last year, the number of new domestic PV installations may reach 160 to 180 GW in 2023.

This 30GW forecast error is not a small amount, indicating that the price decline in the industrial chain and the demand for installed terminals have greatly exceeded expectations.

In many brokers' year-end summaries, the 24-year installed capacity was carefully placed in the 205GW-210GW range. Compared with the actual data from last year, not only was there no increase, but demand may have even been overdrafted ahead of schedule.

Installed capacity in many places has advanced by leaps and bounds, but the problem of insufficient consumption has also come to light. As a result, some projects have had to be suspended from filing, suspended early, and not connected to the grid.

This means that if excess backward production capacity cannot be withdrawn at an accelerated pace, there is still a long way to go to improve the supply and demand side this year.

Another way to deal with excess capacity is to switch from domestic sales to exports.

Facing changes in the policies of importing countries for photovoltaic products in recent years, many integrated module manufacturers have successively established supply chain systems in North America, Southeast Asia, etc., and the movement of other manufacturers to go overseas is also accelerating.

For example, Junda Co., Ltd., a leader in N-type batteries, is seeking to raise capital and go public in Hong Kong. The purpose is very clear: it plans to deploy battery production capacity overseas and expand the sales scope of TopCon.

Compared to the domestic PV market, which has begun to be saturated this year, the PV markets in North America, the Middle East, and Africa still have a lot of room for development.

Another reason for the decline in the market is related to expectations that photovoltaics will go overseas. The prospects for domestic sales to export are not that clear.

Recently, the PV product export data for December showed a certain decline compared to the previous month. According to customs data:

The export value of China's monocrystalline silicon chips > 15.24 cm in diameter was US$321 million, a decrease of 16.05% from the previous month and a decrease of 28.89% from last year;

The export volume of cells was 417 million, down 2.04% from the previous month and up 3.71% from last year;

The export volume of modules was 32 million units, down 4.63% from the previous month, up 24.75% from the previous month; the export value decreased by 8.58% from the previous month, down 20.11% from the previous month.

In December, China exported 3,514,400 inverters, a decrease of 7.58% from the previous month, a decrease of 38.13% from last year, and a decrease of 39.98% from the previous year.

On the other hand, import policies in many overseas regions may continue to tighten support for Chinese PV products in the future. Trump's rhetoric about increasing commodity tariffs in order to attract votes shocked the market.

The purpose of eliminating subsidies or increasing taxes is to protect our own enterprises and further localize the photovoltaic manufacturing industry.

Brazil officially abolished the 12% import tax subsidy on modules in December of last year, on the grounds that the country also produces similar products. At the same time, it also lifted more than 300 temporary tax cuts for solar modules, which took effect within 60 days.

Furthermore, most of Brazil's components are imported from China. From January to October of last year, China exported 3.164 billion US dollars of photovoltaic modules to Brazil, ranking second among the top ten PV module exporters.

If we calculate that China exported a total of 4.8 billion US dollars of photovoltaic products to Brazil and 800 million US dollars of inverters in '22, the tariffs will increase the cost of Chinese enterprises by about 700 million US dollars, which may have an impact on the overall momentum of freight collection at the beginning of next year.

The reason for reducing tariffs previously was that the continued depreciation of the Brazilian currency would drive up the cost of imported components, but the price of imported products was far lower than the price of products from local manufacturers, which would undoubtedly have a huge impact on their business.

Not only in Brazil, overseas PV manufacturers affected by disrupted price competition have begun to gradually weaken, and some have begun to lay off workers or even go bankrupt. In October of last year, Maxeon Solar, a subsidiary of Central, announced that it would lay off 15% of its employees globally.

This year, according to Jibang Consulting's forecast, the world's new installed capacity will reach 474 GW, an increase of 16% over the previous year, and the growth rate will return to rationality. Whether global market demand can drive price revisions in the industrial chain is still unknown.

However, although market confidence is currently weak, it is unlikely that the PV sector will continue to make drastic downward adjustments, whether in terms of valuation or market position. Until actual supply and demand rebalance, for high-quality companies with cost advantages, killing performance at this time may mean the final wave of adjustments.