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LONGI Green Energy Technology is a Chinese company that produces and develops solar energy products and solutions. It is one of the world’s leading suppliers of solar modules and wafers, and also operates solar power projects. It has a mission of “To make the best of solar energy to build a green world” and a vision of providing “Green Power + Green Hydrogen” solutions for global zero-carbon development. It has a strong focus on innovation and sustainability and has broken the photovoltaic cell conversion efficiency record 14 times in a row since 2021.

LONGI’s core business involves the manufacturing of monocrystalline (mono) solar panels (modules), solar cells, and silicon ingots and wafers. This covers the entire solar PV value chain, less polysilicon production. Currently, LONGI Green is the world’s largest solar PV company led by shipments in solar wafers (past 9 years) and modules (3rd consecutive year).

For mono wafers, 50% are for LONGI’s use to produce solar panels, while the other 50% are for direct sales to other manufacturers.

For module shipments, close to 100% are shipped to end-customers with marginal amount of the panels being used to supply LONGI’s own electricity to help cut Scope 1 emissions for production and own buildings usage.

Source: LONGI Green Annual Report 2022

For module shipments, close to 100% are shipped to end-customers with a marginal amount of the panels being used to supply LONGI’s own electricity to help cut Scope 1 emissions for production and own buildings usage.

This reflects LONGI’s leading position in the solar PV space and strong expectations for them to continue to lead the space for innovation and shipments as the world takes on green transition.

Source: BloombergNEF

Solar PV will be the largest key factor in reducing carbon emissions for the planet as coal-fired plants and oil will be gradually phased out over the next few decades. Electrifying power and transportation sectors with renewable energy will play the largest role in cutting CO2 emissions, and solar panels will take the center stage.

Globally, solar PV installations surged in 2023 and will continue to grow steadily over this decade and beyond. In 2023, 413GW of solar PV was installed, and this is expected to grow by about 40GW/yr throughout this decade.

China leads solar PV value chain with sourcing of raw materials to final product production and assembly fully taking place for exporting globally. This is due to a few key reasons. Firstly, China controls 90% of the world’s polysilicon supply and production, which naturally makes it more cost-effective for downstream manufacturing (ingots, wafers, cells, modules). As a result, China currently also accounts for manufacturing of wafers (96.8%), cells (85.1%), and modules (74.7%).

What led to the dreaded decline in LONGI’s share price performance since late 2022

Concerns over capacity build-up due to high levels of solar panels production outpacing demand has led to a major correction in price from July 2022 to Dec 2023. The global solar market has been growing rapidly especially post-COVID with greater deployment of renewable energy (RE) capacity. Solar PV installations is expected to have risen 36% in 2023 to 344GW according to BloombergNEF. But factories are expanding even faster. The raw material of producing solar panels, polysilicon, have been experiencing a huge rise in capacity from big players such as Tongwei, resulting in capacity rising enough to produce 600GW in 2023. Polysilicon prices have declined from USD30/kg in Feb 2023 to USD8/kg in Dec 2023.

LONGI was not spared as this pushed module prices down, falling from CNY1.85/W at the start of early 2023 to CNY1.01W in Dec 2023. 3Q23 net profit declined 42.24% as a result of lower prices which increased shipments did not offset.

There was still growth overall over the first three quarters of 2023 y-o-y. LONGI generated an operating revenue of CNY94.1b, which marks an increase of 8.55% y-o-y, with net profit hitting CNY11.69b, up 6.54% y-o-y. In addition, stabilisation of prices across the value chain has taken place. Polysilicon prices have held steady since June 2023, reflecting stabilising of supply. Even if polysilicon prices take time to recover, the volume of orders for solar modules are expected to stay strong as higher carbon taxes and stricter emissions schemes kicking in globally over this decade and beyond. Solar PV is only set to grow even further for the next two to three decades.

In addition, LONGI strong cash position will allow it to weather this overcapacity cycle and drive innovation to boost efficiency of its cells. Building capabilities to venture into new areas that are critical to green transition will also be the next key driver. LONGI has begun building up capabilities in the green hydrogen space as well as continuing to deploy its energy systems for grid digitalisation.

LONGI currently runs its "Supply Chain Green Partner Empowerment Plan" to encourage suppliers to initiate energy conservation and emission reduction actions through carbon management empowerment training. In June 2022, LONGI also launched the industry’s first “Sustainability Week” to promote the green and low-carbon development philosophy. Along its core business, LONGI highlights the company’s achievements in responding to climate change, pursuing environmental friendliness, and contributing to a zero-carbon future.

Fortune’s “2022 China ESG Influence List” and Forbes China’s “2022 China ESG 50 list” both feature LONGI which grabbed the top position in both lists, attributing to its consistent efforts and outstanding performance in the field of Environmental, Social and Governance (ESG).

Since 2021, US has been imposing tariffs and import bans on certain solar panels incoming from China. In 2022, US had imposed tariffs on Chinese-made solar panels. In July 2023, US Customs and Border Protection has reportedly excluded Longi solar modules made with Tongwei polysilicon from entering the US market. On surface, this is claimed to protect US solar PV value chain from being flooded by Chinese-made solar panels.

Mitigation: China produces a share of 89% in the global output of solar-grade polysilicon in 2022, and expansion continues unabated. These political forces are unlikely to stop the import of Chinese-made solar panels fully as US solar panel industry depends heavily on Chinese imports. In addition, doubts persist that US solar PV industry can move fast enough to manufacture a steady supply of components to build toward its clean energy goals. Clean Energy Associates (CEA) says that while module assembly has a strong presence today in the United States, ingot, wafer, and cell production plans have not kept pace, and no plans for greenfield polysilicon plants have materialized.

There has been over-pessimism on the overcapacity issue. Nevertheless, there is a slight risk of overcapacity lasting longer than expected.

Mitigation: Given that LONGI is the largest solar PV maker in the world and with a strong cash position, it can weather the short-run issue of overcapacity and in fact take advantage and scale up market share as smaller players that suffer under compressed profit margins exit the market.

*Do note that all of this is for information only and should not be taken as investment advice. If you should choose to invest in any of the stocks, you do so at your own risk.

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