In recent times, the renewable energy sector, particularly solar photovoltaic (PV) technology, has faced significant challenges, leaving some firms struggling to maintain operational stability while still eyeing public listingsAmong these entities is Hainan Junda New Energy Technology Co., Ltd., known as Junda New Energy, which is making a bid for an initial public offering (IPO) in Hong Kong despite the prevailing market difficulties.

As of the first half of 2024, Junda New Energy has reported a troubling performance, incurring losses that starkly contrast with its previous financial achievementsThe company primarily manufactures solar cells and relies on major suppliers such as LONGi Green Energy and JinkoSolar, both of which have also reported declining sales in recent quartersLONGi Green Energy, notably, has succumbed to substantial losses, attributed to decreasing demand within the sector, highlighting a widespread downturn affecting all tiers of the industry.

Industry experts are debating when the solar PV sector will finally surge out of its depths

Some seasoned professionals argue that it may take upwards of five years for the market to stabilize, whereas others believe self-regulation within the industry could lead to a cessation of cut-throat competition, paving the way for improvements by late 2025.

Uneven Recovery and Financial Strains

Junda New Energy is laser-focused on the research, development, production, and sale of high-efficiency solar cellsThe company’s prospectus cites statistics from Frost & Sullivan, indicating a 16.1% market share for its N-type TOPCon cells among professional and integrated manufacturers, placing it second globallyFurthermore, it boasts a market share of approximately 5.5% in the overall photovoltaic cell market, positioning it as the eighth largest in the world.

After enjoying a profitable year in 2022, where the firm recorded a net profit of 617 million yuan, Junda New Energy reported a robust 32.2% growth in 2023, yielding a net profit of 816 million yuan thanks to its expanding business scale

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However, the recent downturn has been stark; the company's net profit plunged to a loss of 166 million yuan in the first half of 2024, largely driven by a drop in solar cell market prices.

It is noteworthy that JinkoSolar has been a consistent supplier to Junda New Energy from 2021 to 2023, while LONGi Green Energy has emerged as its principal supplier for the early part of 2024. This dependency on major players reflects the concentrated nature of the solar market, where manufacturers often rely on top suppliers for procurement, contributing to an oligopolistic landscapeA report from Frost & Sullivan reveals that the top ten silicon wafer manufacturers accounted for 89.4% of total global production in 2022, with the top four alone constituting 60.5% of the market share, underscoring the heavy concentration within the industry.

In its financial report, JinkoSolar indicated that its revenue dropped by 16% to 71.8 billion yuan in the first three quarters of 2024, with net profits plummeting by 80%. The company has been vocal regarding the implications of excessive competition, emphasizing how the need for quantity often trumps quality, resulting in declining prices and profit margins for many businesses in the sector.

Furthermore, the report highlights a disturbing trend: as production capability increases and technology advances, prices for solar products decrease, which intensifies competition among manufacturers striving to control costs and enhance product performance

Concurrently, many Chinese solar companies are establishing manufacturing facilities in Southeast Asia, amplifying competition on a global scale.

Jinko's evaluation of the industry's situation is grimIt points out that if market growth in downstream applications fails to keep pace with expansion expectations, an oversupply of products will lead to increased chaotic competition and a dangerous downward spiral in prices—which poses a fundamental risk to profitability within the sectorLONGi Green Energy's statement echoes these fears, highlighting a disappointing revenue drop to 58.6 billion yuan in 2024, down 37.73%, and substantial losses reflecting the same pressures faced by companies across the industryIt notes that while global solar installations have risen, the imbalance between supply and demand continues to worsen, alongside relentless price declines and evolving trade barriers.

When Will the Industry Recover?

The pervasive question remains: when will the PV industry's relentless price wars subside? The prevailing losses have sparked a considerable amount of debate amongst professionals within the sector

A veteran investment banker from Hong Kong shared insights, stating that the surplus in manufacturing capacity has led numerous solar firms into financial distressThe situation necessitates raising capital while investors must consider their willingness to brave the storm, with the low point potentially offering a favorable entry point for long-term investors—and urging them to approach the sector’s current challenges with rationality.

In December 2024, a major conference organized by the China Photovoltaic Industry Association and the Yibin City Government took place in Sichuan, where industry figures urged for increased self-discipline to improve quality and manage production levelsAnalysts from Guosen Securities noted that efforts to enhance industry self-regulation are expected to accelerate capacity clearing, which could ultimately benefit the fundamentals of the sector

Meanwhile, Dongfang Securities suggested that the establishment of a self-regulation pact signifies a commitment among solar manufacturers to manage output responsibly to balance supply and demand and stabilize market pricing.

Junda New Energy's prospectus communicates uncertainty regarding the likely outcomes of such self-regulation effortsEven though associations are advocating against undercutting prices and nurturing sustainable industry growth, Junda recognizes that the efficacy of such initiatives may fail to manifest promptly or fully, leaving the market still vulnerable.

Comparatively, as a rapidly developing sector, the solar industry faces significant hurdles that have caused price fluctuations observed since late 2023. In the global context, solar energy's versatility stands outUnlike wind or hydroelectric power, solar can be leveraged across various scales and is more accessible due to its lesser geographical restrictions