The solar industry, long characterized by relentless expansion and price wars, is now witnessing a significant shift, marked by rare discussions of price hikes and production cuts

On August 27, leading silicon wafer manufacturers TCL Zhonghuan and Longi Green Energy initiated price increases for silicon wafers, signaling a new era in the marketAt the same time, TCL Zhonghuan announced unexpected production cuts, indicating that future operational rates would be adjusted based on sales performance.

This unusual turn of events is largely driven by the immense pressure from sustained financial lossesIn the first half of 2024, TCL Zhonghuan reported its worst financial results since its public listing, with revenue plummeting by 53.54% to 16.213 billion yuan, and a staggering net loss of 3.064 billion yuan, a decrease of 167.53% compared to the previous year

This translates to three consecutive quarters of losses, accumulating close to 6 billion yuan.

Consequently, as trading commenced on August 28, TCL Zhonghuan’s stock immediately fell, closing at 7.66 yuan per share—a decline of 0.52% for the day and nearly 50% year-to-date, leading to a total market capitalization shrink to 30.97 billion yuan.

"Silicon Wafer King Suffers Significant Losses"

Historically, TCL Zhonghuan's silicon wafer business has generated over 70% of its revenue, solidifying its status as the "king of silicon wafers." However, with the ongoing decline in pricing across the solar supply chain, the magnitude of their silicon wafer operations has led to profound financial repercussions.

In the first half of this year, revenue from the silicon wafer segment fell to 10.432 billion yuan, marking a 61.31% decrease while still representing 64.34% of total revenue

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The gross profit margin plummeted to -9.25%, a stark 137.16% decline, making it the only primary business sector of the company to report a negative margin.

During the same period, silicon wafer market prices continued to languish, with an average drop of over 40%. Specifically, the G10L monocrystalline wafer prices fell by 47.14%, while the G12 monocrystalline wafers saw a decrease of 45%.

Other core business areas of TCL Zhonghuan have also suffered, although they continue to produce marginal profitsThe modules segment generated 2.762 billion yuan, down 46.95%, with a gross margin of merely 0.94%, reflecting a dramatic 92.29% dropAdditionally, margins for other silicon materials and photovoltaic power plants noted year-over-year declines of 72.45% and 8.6%, respectively.

In addressing the ongoing losses, TCL Zhonghuan attributed the challenges to a growing imbalance between supply and demand, leading to irrational pricing competition in the renewable energy materials sector

Although the company maintains an industry-leading cost-per-watt metric, cost reductions have not kept pace with market price declinesDuring the first half of the year, they shipped 62 gigawatts (GW) of materials, amplifying their total losses.

In response to these financial pressures, TCL Zhonghuan has opted to reduce its operational capacityDuring the performance briefing on August 27, company representatives stated that they were operating at around 80% capacity and may continue to lower this figure based on sales outlookNotably, industry reports indicated that in July, TCL Zhonghuan had still been producing at maximum capacity.

In conjunction with these adjustments, TCL Zhonghuan has announced an increase in silicon wafer prices—specifically, the new pricing for NG10 wafers is set at 1.15 yuan each, 1.5 yuan for NG12 wafers, and 1.3 yuan for NG12R wafers

The firm assertively stated that unchecked competition was putting immense pressure on the industry, prompting the need for internal adjustments to maintain reasonable inventory levels, and enhance the supply-demand conditions in the silicon wafer market, ultimately restoring health to the industryOn the same day, Longi Green Energy also announced a rise in silicon wafer prices, closely aligning with TCL Zhonghuan's new rates.

Fang Wenzheng, a solar industry analyst with Longzhong Information, noted that this price hike from industry leaders illustrates a collective effort within the solar sector to move away from cutthroat price competition and towards a more sustainable and reasonable competitive environmentHowever, he cautioned that whether this effort will succeed is still uncertain due to the persistent fundamental issues of excess capacity

It is likely that some high-cost production lines may exit the market due to their lack of competitiveness.

The price fluctuations of silicon, as a fundamental raw material in the upstream sector of the solar industry, can profoundly influence the cost structures of downstream segments, which in turn communicates production signals throughout the industryShould lower production costs be effectively passed on to end consumers or power station developers, an overall improvement in profit margins within the photovoltaic sphere may be feasibleConversely, if this price increase fails to transmit through to downstream partners or if demand diminishes in response to rising prices, the anticipated benefits may be minimal, potentially exacerbating operational pressures on several firms.

"The Departure of a Key Figure"

Notably, prior to the release of its interim financial results, TCL Zhonghuan experienced a significant internal management shake-up

On August 3, TCL Zhonghuan announced that CEO Shen Haoping had resigned due to personal commitments and the demands of his roleDespite stepping down as CEO, Shen continues to hold his position as the company’s director and vice-chairman.

At 62 years of age, Shen Haoping boasts over 40 years of experience with TCL Zhonghuan, having served as CEO for 17 yearsHe successfully guided the company through the industry downturns of 2008 and 2012, earning the moniker "soul of TCL Zhonghuan." However, this time, he has chosen to step back.

There is much speculation around the abrupt resignation of Shen Haoping, with prevailing opinions suggesting that TCL Zhonghuan's past operational strategies no longer align with the current cyclical realities of the industry, necessitating an overhaul from the top down

For instance, in contrast to the general trend of reduced operational capacities among solar manufacturers, who have scaled down to 50-60% capacity in the first half of the year, TCL Zhonghuan maintained a higher operational rate, believing that sacrificing some profit for market share would yield long-term benefitsRecent performance results, however, indicate that this strategy is unsustainable.

Moreover, concerning the company's debt levels, Shen's expansion plans may have contributed to heightened financial strain on TCL ZhonghuanBy June 2024, the company’s total liabilities had reached 69.261 billion yuan, with a debt-to-asset ratio of 55.32%, rising by 3.43 percentage points since the end of 2023. During the same timeframe, asset impairment losses shot up to 1.114 billion yuan, with inventory impairment losses accounting for a staggering 1.109 billion yuan.

TCL Zhonghuan acknowledged the mounting pressures on its operational performance, stating that these challenges have raised the expectations of overall organizational capability and the executive team's collective skills

After careful consideration, the Board accepted Shen Haoping’s resignation, with Chairman Li Dongsheng temporarily taking over the CEO position, and the search process for a new CEO being expedited.

Reports suggest that Wang Yanjun, who was recently appointed as TCL Zhonghuan’s Senior Vice President, is a leading candidate for the CEO positionAt 41 years old, Wang joined TCL Zhonghuan in 2006 and has rapidly ascended to become one of the company's youngest senior managersIn 2021, during the 40th anniversary celebration of TCL, he received accolades as a model employee while serving as the Deputy General Manager of TCL Zhonghuan Semiconductors.

As TCL Zhonghuan stands at a critical juncture, the question remains whether the "new leadership" can successfully navigate the challenges of the current cycle, a reality that will unfold only with time.

Accelerating Control of Loss-Making Segments

In addition to revising its internal management structure and external business strategies, TCL Zhonghuan is also expediting its acquisition of a controlling stake in its overseas joint venture Maxeon.

On August 26, TCL Zhonghuan announced plans to accelerate the implementation of a restructuring plan for Maxeon, with a total investment of up to $197.5 million (approximately 1.4 billion yuan). This plan was initially announced in May, intended to increase TCL Zhonghuan's ownership stake in Maxeon from 22.39% to at least 50.1%.

Maxeon, headquartered in Singapore, is primarily engaged in the design, manufacture, and sale of solar modules under the Maxeon and SunPower brands, with a global presence across Africa, Asia, Oceania, Europe, and the Americas

As of now, TCL Zhonghuan is its second-largest stakeholder.

Regarding its decision to push for a controlling stake in Maxeon, TCL Zhonghuan stated that Maxeon serves as a critical strategic pivot in their international energy transition efforts, boasting unique market advantages and technological innovationsThe accelerated investment transaction is intended to facilitate Maxeon's operational stability and support its future contributionsOnce completed, TCL Zhonghuan aims to enhance its capital structure, implement business reforms, and optimize operations to leverage Maxeon's distinct market advantages and facilitate global production synergies.

However, it is essential to note that Maxeon has experienced continuous losses since 2022, adversely affecting TCL Zhonghuan's performance