After a one-day delay in announcing its semi-annual report, Tongwei Co., Ltdhas finally unveiled the disheartening truth behind its financial performance.

In the first half of this year, Tongwei reported a staggering operating revenue of 43.797 billion yuan, reflecting a dramatic year-on-year decline of 40.87%. Its net profit attributable to the parent company's shareholders plummeted to a loss of 3.129 billion yuan, marking a jaw-dropping 123.58% drop compared to the previous yearA closer examination of their finances reveals that Tongwei has suffered losses for three consecutive quarters, largely due to the unfavorable industry trends they are experiencing.

On September 2, the company’s stock fell by 4.21%, priced at 18.21 yuan per share, amounting to a total market capitalization of 81.981 billion yuan.

Inventory write-downs lead to massive losses

Established in 1995 and listed on the Shanghai Stock Exchange in 2004, Tongwei Co., Ltd

is primarily controlled by Tongwei GroupIt stands as a major privately-owned technology enterprise committed to efficient symbiosis in green agriculture and energyTongwei has earned the title of the world’s largest producer of high-purity polysilicon and solar cells, boasting an annual production capacity of 650,000 tons for polysilicon; 95 GW for solar cells; and 75 GW for modulesAdditionally, the company has pooled resources for photovoltaic power stations, accumulating an installed capacity of 4.07 GW, predominantly through its innovative “fish-solar integration” approachBy 2024-2026, they aim for substantial enhancements to their production capacities: polysilicon to range from 800,000 to 1,000,000 tons and solar cells to scale from 130 GW to 150 GW.

In the previous years, Tongwei reaped significant profits from its photovoltaic (PV) business, solidifying its status as the “King of Solar Profit.” From 2021 to 2023, they reported net profits of 8.208 billion yuan, 25.726 billion yuan, and 13.574 billion yuan, respectively.

Nevertheless, as the solar industry has entered a new downturn, Tongwei’s financial health has deteriorated significantly

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Since Q4 2023, the company has reported losses for three consecutive quarters, with quarterly net profits reflecting losses of 2.728 billion yuan, 789 million yuan, and 2.342 billion yuan.

An analysis of Tongwei’s asset impairment reveals that inventory devaluation has been the primary culprit behind their lossesIn the first half of this year, the company made a provision for inventory depreciation of 2.253 billion yuan, alongside provisions for bad debts of 90 million yuan for accounts receivable, 25 million yuan for other receivables, and 2 million yuan for contract assets.

According to Tongwei, the rapid growth of the new energy sector in recent years has attracted an influx of social investments, leading to gradual capacity releases

Consequently, this rapid increase in supply has heightened market competitionThe price of major products within the photovoltaic industry has seen considerable drops since the second half of 2023, putting significant pressure on corporate profitability.

This situation is corroborated by industry observationsIn the first half of this year alone, the photovoltaic market exhibited a heightened oversupply situationReports from the China Photovoltaic Industry Association and other professional institutions indicate that between January and June 2024, the production output of polysilicon, silicon wafers, cells, and modules in China surged by approximately 60.6%, 58.9%, 37.8%, and 32.2%, respectivelyHowever, the prices of these materials plummeted, with declines of 40%, 48%, 36%, and 15%, breaking all historical lows and severely challenging the cost lines for enterprises, plunging the industry into a broad state of losses.

Data from iFinD shows that nearly 40% of the 65 publicly-listed companies categorized under photovoltaic equipment by Shen Yi Wan Guo reported losses in the first half of this year, with over 70% facing declining performance

Additionally, several less competitive firms have begun to experience production halts or reductions due to insufficient orders, inventory build-up, and cash flow issues.

Addressing the question of when the turning point for the photovoltaic industry might arrive, Liu Hanyuan, Chairman of Tongwei Group, expressed during the annual shareholders' meeting in May, “The most optimistic view is that things will improve in the latter half of this year, while the most pessimistic view suggests a potential recovery in the latter half of next year.”

Furthermore, during a recent investor research event, representatives from Tongwei elaborated that following the downward pressure on polysilicon prices cutting into industry cost lines, there have been widespread reductions in production and maintenance across the industry

Most new projects have also seen delays in commencementIf low polysilicon prices persist, further production reductions or halts in the industry are possible; however, the specific pace of adjustment will depend on various factors including differing business strategies and financial strengths among companies, as well as the potential for more significant supply-side reform policies and demand outstripping expectations in the second half of the year.

Pursuing expansion under high debt

Despite being acutely aware of the bleak industry landscape, Tongwei continues to aggressively expand its operations.

In the first half of this year, Tongwei disclosed that its 200,000-ton polysilicon project in Yunnan began production in May 2024, with full capacity achieved

The Baotou 200,000-ton high-purity polysilicon project is expected to be completed and operational by the end of the year, which will push the company's polysilicon production capacity to over 850,000 tonsAs of June 2024, the company has already established high-purity polysilicon production capacity exceeding 650,000 tons, as well as solar cell capacity of 95 GW and module capacity of 75 GW.

It is vital to highlight that the expansion of Tongwei's photovoltaic sector does not sufficiently mitigate the severe impact of falling product pricesAdditionally, the recently launched Yunnan polysilicon project remained in a loss position during the first half of the yearTongwei attributed this to the project being in a debugging phase and facing setbacks due to a decrease in product prices.

From a technical perspective, Tongwei has opted for an all-inclusive approach

According to Tongwei’s Chief Technology Officer for photovoltaics, Xing Guoqiang, he indicated that over the next five years, the mainstream technology route for solar batteries will likely trend toward diversificationCurrently, Tongwei is exploring all of the main technological routes in the industry, establishing high-capacity production environments, simultaneous development of key equipment and processes across multiple routes, and accelerating the cyclical path of research, trial production, and mass industrial transition.

In November 2023, Tongwei initiated the establishment of a global innovation research and development center aimed at facilitating efficient technological development and industrial applicationBy the end of June, the newly constructed pilot lines for TOPCon, HJT, XBC, perovskite batteries, and modules had been successively put into operation.

Simultaneously, Tongwei is ramping up its expansion into overseas markets

On August 14, the company announced plans to invest 5 billion yuan to acquire a minimum of 51% of Runyang Co., which recently failed to IPOFollowing the transaction, Runyang will become a subsidiary of TongweiThe latter expressed that, after years of development, Runyang has established competitive production capacities in markets such as the United States, Thailand, and Vietnam, which can meet Tongwei's overseas market traceability requirements.

However, these ambitious expansion plans come with rising debt pressuresBy the end of June 2024, Tongwei’s total liabilities soared to 133.285 billion yuan, a substantial increase of 42.751 billion yuan from the end of 2023, while total assets grew by just 34.008 billion yuan during the same periodThe current debt ratio of the company stands at 67.19%, compared to 55.08% at the end of 2023.

Industry insiders have previously remarked that current competition among photovoltaic enterprises is less about technology and more about financial capacity

To weather the current downturn, the priority is to secure stable cash flow, followed by cautious capacity expansions to maintain industry supply and demand balance.

Noteworthy is the fact that prior to the release of the semi-annual report, Tongwei unexpectedly announced a delay in the disclosure date from August 30 to August 31. This decision raised speculation that the postponement was intended to circumvent trading days, thereby minimizing the potential negative impact of the poor performance report on its stock price.

This year, Tongwei's stock price has fluctuated downward, plummeting 24.5% from its price at the beginning of the year, resulting in over 30 billion yuan evaporation in market value, leading the company outside of the “100 billion market club” within the photovoltaic sector.