Is TCL's Central Ring Taking a Step Back?

In recent developments within the solar energy sector, the complexities of competition continue to intensify, leading to concerns about the industry's sustainability. One significant event occurred on November 29, when the U.S. Department of Commerce announced the preliminary results of its anti-dumping investigation into crystalline solar cells from four Southeast Asian countries: Cambodia, Malaysia, Thailand, and Vietnam. Reports indicate that the proposed anti-dumping tariffs could range from 0% to an alarming 271.28%, with the final decision expected by mid-2025. Major players in the industry, such as Longi Green Energy, JA Solar, and Trina Solar, are all bracing for the repercussions of these potential tariffs.

As the industry grapples with challenges, some companies are adjusting their strategic approaches. Notably, on the same day as the announcement, TCL Zhonghuan revealed its decision to halt the issuance of convertible bonds aimed at unspecified parties, seeking to withdraw relevant application documents from the Shenzhen Stock Exchange. This development indicates that TCL, often referred to as the "King of Silicon Wafer," is taking a step back amidst a turbulent market environment. Furthermore, the sudden resignation of Qin Shilong, the company's board secretary, adds an additional layer of uncertainty regarding TCL's future endeavors.

Advertisement

On December 2, however, shares of TCL Zhonghuan experienced a slight uptick, closing at 10.65 yuan each, a modest increase of 1.24%, bringing the company's total market value to approximately 43.059 billion yuan. Analyzing the situation over a more extended timeline reveals that the decision to suspend the convertible bond project marks a significant turning point for TCL Zhonghuan, reflecting a broader decline in the solar industry's profitability.

Back in April 2023, TCL Zhonghuan had ambitious plans to raise up to 13.8 billion yuan through the issuance of convertible bonds, which were slated to finance the construction of a high-purity solar ultra-thin monocrystalline silicon wafer factory with an annual capacity of 35 GW and a high-efficiency solar cell manufacturing facility. Despite the promising nature of these projects, the concerning signs of overcapacity began to emerge, leading to challenges during the approval process by the Shenzhen Stock Exchange.

Throughout this period of review, the solar sector entered a fresh cycle of decline, compelling TCL to revise its bond issuance plan significantly downwards from an initial 13.8 billion yuan to just 4.9 billion yuan by May 24. Analysts highlighted that TCL's decision to slow down its expansion was primarily influenced by the cooling market conditions and disappointing performance metrics.

Fast forward to now, and the anticipated recovery within the solar industry appears faded, with TCL Zhonghuan reporting further deteriorating results. During the first three quarters of 2024, the company recorded revenues of 22.58 billion yuan, a staggering year-on-year decrease of 53.6%, alongside a net loss of 6.061 billion yuan. The third quarter saw losses grow to 2.998 billion yuan, with net sales dipping to an alarming -51.85%.

Amidst these challenging circumstances, TCL Zhonghuan's management has emphasized the need for organizational restructuring and optimizing its product lineup and capacity. Despite the global increase in installed solar capacity, intense competition and a previous surge in manufacturing capacity have led to falling product prices, positioning the industry at a cyclical low point. As players are vying for survival, industry consolidation appears to be accelerating, with some companies facing an uphill battle for market relevancy.

In a bid to combat the obstacles posed by internal market conditions, there has been a rising call for self-regulation within the solar industry. On November 22, the China Chamber of Commerce for Import and Export of Mechanical and Electrical Products convened a self-discipline meeting involving 22 domestic solar firms, including TCL Zhonghuan, Longi Green Energy, and Tongwei, among others. This was preceded by a mid-October roundtable discussion focused on curbing "involution" or cut-throat competition within the sector.

Additionally, industry insiders disclosed that certain silicon wafer manufacturers have initiated discussions regarding production cuts to improve current market conditions. The anticipated demand for silicon wafers in 2025 is expected to reach around 600 GW, and deliberations have begun on quota allocations based on company size, with TCL Zhonghuan and Longi both proposed to have a share of 120 GW.

As of the end of September 2024, TCL Zhonghuan had boosted its monocrystalline silicon production capacity to 190 GW, leading the market share in that segment. Given these supply and demand dynamics, the decision to terminate the convertible bond issuance and pause at the current capacity may indeed represent a cautious response to the prevailing market atmosphere.

While the domestic expansion plans are on hold, TCL Zhonghuan is accelerating its push into international markets. Recently, on November 26, the company announced plans to acquire assets from Maxeon, including its wholly-owned subsidiary SPML, non-U.S. sales subsidiaries, and associated tangible and intangible assets like the Sunpower trademark. This move is perceived as an effort to consolidate overseas manufacturing and optimize channel resources.

However, concerns linger regarding the financial viability of Maxeon, which has reported comprehensive losses since 2022, adversely impacting TCL Zhonghuan’s performance by over 1.8 billion yuan. Despite assertions surrounding Maxeon’s technological advantage, market skepticism remains.

The entry of Chinese solar companies into the global market is not without challenges, particularly stemming from tariffs levied by foreign governments against imports. The U.S. Department of Commerce has initiated a maximum anti-dumping tariff of approximately 271% on solar products from the above-mentioned Southeast Asian countries. The repercussions of such tariffs could significantly impact the viability of international operations for these firms, with a final ruling expected next April.

With trade policies affecting the landscape, the Middle East has emerged as an appealing new frontier for many Chinese solar companies. In July, TCL Zhonghuan entered into a shareholder agreement with the Public Investment Fund of Saudi Arabia and Vision Industries to establish a joint venture focusing on the localized production of solar crystalline wafers in Saudi Arabia, with plans for an investment exceeding $2.08 billion. The project is anticipated to produce 20 GW annually and become the first of its kind in Saudi Arabia.

Amidst the backdrop of ongoing uncertainties, TCL Zhonghuan continues to experience turbulence in its management structure. On November 29, the company announced the resignation of board secretary Qin Shilong, citing personal reasons, and emphasizing its intent to swiftly appoint a new secretary. Zhang Changxu, the COO and CFO, is currently fulfilling this role in an interim capacity.

Interestingly, the leadership landscape at TCL Zhonghuan has been in flux, with CEO Shen Haoping having stepped down earlier in August, citing the need for a personal energy reallocation. Following this departure, plans were laid for the appointment of Wang Yanjun as CEO, underscoring the rapid pace of managerial shifts within the enterprise.

As assessors continue to weigh the company's future amidst mounting pressures related to performance and shifting market dynamics, the timeline for a potential bottoming out of the solar industry remains uncertain. Optimists within the sector speculate that mid-2025 could herald a turning point, while analysts at Zheshang Securities project demanding conditions to persist across the four critical stages of the solar value chain, suggesting the pivotal moment may likely arrive in the second or third quarter of the coming year.