LONGi Green Energy lost 2.35 billion yuan in the first quarter, and its main business faced industry challenges

LONGi Green Energy, which has successfully bet on monocrystalline silicon wafers and diamond wire cutting technology, can it succeed again this time?

"China Science and Technology Investment", Long Min, Li Wanting

Recently, LONGi Green Energy (601012. SH) disclosed its 2023 annual report and 2024 first quarter report. According to the information in the annual report, in 2023, LONGi Green Energy will achieve operating income of 129.498 billion yuan, a slight increase of 0.39% year-on-year; The net profit attributable to the parent company was 10.751 billion yuan, a year-on-year decrease of 27.41%.

However, not all PV companies have seen a decline in profits. In contrast, JinkoSolar (688223. SH) will achieve revenue of 118.682 billion yuan in 2023, a year-on-year increase of 43.55%, and net profit attributable to the parent company of 7.440 billion yuan, a year-on-year increase of 153.2%; Trina Solar (688599. SH) operating income in 2023 will be about 113.51 billion yuan, a year-on-year increase of 33.46%, and the net profit attributable to the parent company will be about 5.561 billion yuan, a year-on-year increase of 51.12%, both of which are higher than those of LONGi Green Energy.

Judging from the quarterly report, in the first quarter of 2024, LONGi Green Energy achieved operating income of 17.674 billion yuan, a year-on-year decrease of 37.59%; The net profit attributable to the parent company was -2.350 billion yuan, a year-on-year decrease of 164.61%. This is its first single-quarter loss in a decade, and LONGi Green Energy has become the largest loss-making listed PV company in the first quarter of this year.

The performance of wafers and cells and modules has been cold

Founded in 2000, LONGi Green Energy mainly provides innovative green and new energy solutions for customers in the industrial, commercial and residential markets. As a leading company in the integration of photovoltaic modules, its business covers five business segments: monocrystalline silicon wafers, battery modules, distributed photovoltaic solutions, ground photovoltaic solutions, and hydrogen energy equipment.

In 2019, driven by favorable policies, the mainland's photovoltaic industry entered a stage of rapid growth. According to data from the National Energy Administration, from 2019 to 2023, the new installed capacity of PV in mainland China increased rapidly from 30.1GW to 216.88GW, and the cumulative grid-connected installed capacity increased from 204.3GW to 609.5GW. In the past four years, the new installed capacity and grid-connected installed capacity of PV in mainland China increased by 620.63% and 198.34% respectively.

With the substantial growth of installed capacity, the photovoltaic industry chain has ushered in a full explosion. In the past few years, the performance of polysilicon, wafer, cell and module companies in the upper and middle reaches of the PV industry chain has basically continued to improve, and the performance of LONGi Green Energy has also soared. From 2019 to 2023, LONGi's operating income increased from 32.897 billion yuan to 129.498 billion yuan, an increase of 293.65% in four years, and its share price also reached a high of 125.68 yuan per share in 2021.

The rapid development of the photovoltaic industry has attracted a large number of traditional photovoltaic enterprises to expand production and enterprises in other industries to enter the market across borders, and the phenomenon of surplus has begun to appear. In November 2023, the relevant person in charge of China's Ministry of Industry and Information Technology publicly stated that "there is indeed a certain stage and structural excess risk in China's photovoltaic industry".

In terms of data, according to the National Bureau of Statistics, in 2023, the output of photovoltaic cells in mainland China will be 541.16GW, compared with 216.88GW of new installed photovoltaic capacity in 2023, a significant increase of 148% year-on-year, but this figure is still less than half of the output of photovoltaic cells.

It is worth noting that against the backdrop of PV cell overproduction, LONGi Green Energy's wafer and cell-plus-module shipment targets for this year have still increased slightly. According to LONGi's annual report, in 2024, LONGi said that it will strive to achieve the target of 135GW of wafer shipments and 90-100GW of cell and module shipments.

This goal may be closely related to LONGi's performance in the wafer and cell-plus-module fields in 2023. In 2023, LONGi Green Energy will ship 125.42GW of silicon wafers, a year-on-year increase of 47.45%, ranking first in global monocrystalline wafer shipments for nine consecutive years. TCL Zhonghuan (002129.SZ) followed closely behind, with wafer shipments increasing by 68% year-on-year to 114GW, only about 11GW behind LONGi Green Energy, and about 17GW in 2022.

In terms of cell modules, in 2023, LONGi Green Energy will ship 67.52GW of cell modules, while JinkoSolar will surpass LONGi Green Energy to take the first place with 78.52GW of shipments, and LONGi Green Energy will officially give way to JinkoSolar in the world's first position in cell module shipments for three consecutive years.

At the Q3 2023 results conference, Li Zhenguo, founder and president of LONGi Green Energy, said that the company made a strategic mistake and did not follow up when other companies seized the market with low-price orders, which affected module sales and delivery in the fourth quarter.

However, going into 2024, the situation does not seem to be getting better. According to public data, LONGi's cell module shipments in the first quarter of 2024 will be 12.89GW, surpassed by JA Solar (002459.SZ) and Trina Solar, ranking only fourth among domestic PV companies.

BC battery market share has risen slowly

LONGi's lower market performance is partly related to the technical route it has chosen.

At the 2023 semi-annual results briefing, Zhong Baoshen, chairman of LONGi Green Energy, declared: "LONGi has a very clear view that in the next 5-6 years, BC cells will be the absolute mainstream of crystalline silicon cells, including bifacial and single-sided cells, and a large number of LONGi's products will move towards the BC technology route." Subsequently, LONGi Green Energy announced that it plans to invest 3.915 billion yuan to build a 12GW high-efficiency monocrystalline cell project in Tongchuan, which will use HPBC cell technology.

In fact, in the 70s of the last century, the American Sun Power company proposed the cross-finger BC structure, and began to industrialize it in the eighties and nineties of the last century. Because of the technical difficulties at that time, the development of BC batteries has been slow. At present, as the conversion efficiency of P-type cells is close to the theoretical limit, the conversion efficiency and production cost of N-type cells continue to improve, and the photovoltaic industry is upgrading from P-type to N-type technology, and the market share of N-type cells continues to increase.

According to InfoLink's forecast, N-type technology will account for 79% of the market in 2024 and fully replace P-type batteries from 2026 to 2027. As a technical path for N-type cells, BC cells have also been re-focused by the photovoltaic industry.

However, it cannot be ignored that due to the impact of BC battery technology, many production processes, incompatibility with the current P-type production line and other problems, its market share is not high. According to the "China Photovoltaic Industry Development Roadmap (2023-2024)" compiled by the China Photovoltaic Industry Association, the BC battery market will only account for about 1% in 2023.

TOPCon cells, which are also N-type cells, have quickly occupied the mainstream of the market due to their advantages of high mass production efficiency, low production cost 688472 and strong compatibility. SH) and other PV companies are betting on the TOPCon cell path and rapidly expanding new production capacity. Aiko Co., Ltd. (600732.SH), which also bet on the BC battery route, also announced in March this year that it would invest 10 billion yuan to expand the production of TOPCon batteries.

In the face of a more severe competitive environment, Zhong Baoshen said at the 2023 LONGi Green Energy Year-end Dialogue: "In 2024, a new round of photovoltaic 'cold winter' is coming. First of all, overcapacity and falling prices will definitely have some photovoltaic companies eliminated, so survival is the first priority. And only by 'building high walls, accumulating grain, and maintaining cash flow' can it be possible to survive. ”

According to LONGi's financial report, in 2023, LONGi's net cash flow from operating activities will be 8.117 billion yuan, a year-on-year decrease of 66.69%. On the other hand, JinkoSolar and Trina Solar have net cash flows from operating activities of 24.816 billion yuan and 23.996 billion yuan respectively by the end of 2023, which is about three times that of LONGi Green Energy.

Cao Zhe, chief investment officer of Evan Zhiluo, said that "the backwardness in cash flow may indeed bring certain risks to LONGi Green Energy", which is mainly manifested in "liquidity pressure", "weakening investment ability" and "reduced trust of customers and suppliers". He added, "LONGi Green Energy needs to pay close attention to industry dynamics and market competition patterns, and constantly adjust and optimize its strategy and operational strategy to cope with the increasingly severe competitive environment. ”

However, so far, LONGi Green Energy is still optimistic about the development prospects of BC batteries. In the 2023 annual report letter to shareholders, Zhong Baoshen said that 2024 is a year for LONGi Green Energy to "break out of the cocoon of a new generation of BC products and lead the industry's technological iteration" and "accelerate the global business layout".

The reporter sent a letter to LONGi Green Energy on performance, technical routes, industry competition, etc., but has not received a reply so far.