Recently, the leading silicon wafer companies have taken the lead in starting a price war, setting off a new round of price games in the photovoltaic industry chain.
If technological innovation is the primary productivity of the photovoltaic industry, then the industry chain game is regarded as the secondary productivity: an important source of excess profits, which will be fully reflected in 2021.
How to understand and respond to the industry chain game has become an important strategic issue for photovoltaic companies.
01 Why is the silicon chip leading the way?
Wafer prices reached a high point in October-November. Longi began to cut prices continuously on November 30 and December 16, with the largest cumulative drop of about 14.8%. In addition, Zhonghuan also announced price cuts.
Why is the silicon chip leading the way?
Silicon wafers are a close downstream of the silicon material link. From the situation in early 2021, when the price of silicon materials rises, because of inventory and order lock-in, silicon wafers will benefit in the short term, but this “money picking effect” will take place over time. It is also gradually disappearing, and the battery and module links that are farther from the silicon material link are difficult to benefit from and are harvested by the upper reaches. This is an important feature of the photovoltaic industry chain in 2021.
However, when entering the end of 2021, the price of silicon materials begins to peak with the release of production capacity, and the price of silicon materials is expected to enter a downward channel, and the influence of the industrial chain is reversed. In this case, as a closely downstream silicon wafer link, the inventory must be reduced as much as possible, and I don’t know where it will fall tomorrow.
With reference to the performance when silicon material prices are rising, when the price of silicon materials is expected to fall, the impact of inventory in the silicon wafer link is the most sensitive, and the silicon wafer link has more power to balance production to reduce the impact of silicon material prices.
However, what is more painful is that although the production capacity of the silicon material segment has begun to be released, it is still controlled by the old forces and presents an oligopoly pattern. The price of silicon material will not drop overnight, and the impact on downstream silicon wafers will be a continuous process.
In addition, silicon wafer competition is also an important factor.
In 2021, there will be a lot of new production capacity in the silicon wafer link, and many new forces have poured into it. The production capacity of silicon wafers is greater than that of silicon materials. The capital strength is “either rich or expensive”. For subsistence. The actual situation is that the price of silicon wafers has fallen recently, but the price of silicon materials has not loosened much.
The price of silicon wafers has fallen sharply, but the price of silicon materials has not changed much, which means that the gross profit of the silicon wafer segment is shrinking sharply. The leading companies can support more price reductions because of higher gross profit margins, but the tail companies are especially new If the power is not supported by too high gross profit margin, it may have fallen below the break-even point.
Longi took the lead in launching a price war. It looks like a tactic, but it is a strategy. Although it will sacrifice a certain amount of profit, it can retain its own market share or even strive for a higher market share. The focus is on suppressing competitors.
02 The current price elasticity of each link is very different
Judging from the current price data, silicon wafers have provoked this round of price wars, but the price of upstream silicon materials is not obvious, and downstream batteries and components have declined to a certain extent but not much. The game between upstream and downstream of the industry chain is at a critical point. stage.
The price elasticity of each link depends on many factors, such as:
1. The supply of capacity in each link of the industrial chain. At present, the capacity of upstream and downstream of the industrial chain is “olive-shaped.” The upstream silicon material and terminal power station demand basically match, but the intermediate silicon material, battery and module production capacity is significantly more, that is, excess. This is the fundamental reason why the silicon material link is always tightly balanced.
2. The proportion of material cost and capital expenditure. The current proportions of silicon materials/silicon wafers, silicon wafers/cells, cells/modules, and modules/photovoltaic systems are different, ranging from 40-60% , And with changes in upstream and downstream prices, there are differences in the impact of upstream prices on downstream. The greater the proportion of material costs, the more obvious the impact of material prices.
The different proportion of material cost also means that the proportion of capital expenditure is different. Different capital expenditures will lead to different effects of operating rate on gross profit margin. The higher the proportion of capital expenditure, the greater the impact of operating rate on gross profit margin. Often the higher the operating rate of the leading enterprises, the greater the room for price flexibility.
3. Expected gross profit margin. After the impact of the industrial chain in 2021, the gross profit margin of cells and modules is at a low level, and there is still a repair process. In the case of lower upstream silicon wafer material costs, there will be no equivalent price cuts in the short term, and The current operating rate is not high, which further reduces the room for price flexibility.
At present, the price of silicon wafers is the first to cut prices, but the upstream silicon materials have not reduced their prices simultaneously, which means that the gross profit margin of silicon wafers will be low in the short term, and the subsequent need to wait for the price of silicon materials to achieve the return of gross profit margin, but the timetable is unpredictable.
It can be seen that the key to the current local game is silicon wafers and silicon materials. After the 2021 stress test of solar cells, components, and power stations, they are relatively calm at present. Whether or not to cut prices simultaneously depends on whether the gross profit/yield rate returns to normal.
03 Industry chain game is the second productive force
The involution of photovoltaics is not new in recent years.
Partial game in the industrial chain is an important source of excess profits for photovoltaic companies, which will be fully reflected in 2021. Why photovoltaic companies have integrated one after another is nothing more than reducing the uncertainty of the industry chain game.
This is related to the characteristics of the photovoltaic industry. The industry chain has a long link, and the previous link accounts for a relatively high cost of the next link. The technology, process, and equipment of each link are completely different. Each link has different entry barriers, and each link is controlled by giants, and the competition pattern is stable. The result is that there is a lot of competition and conflicts.
The existence of partial game in the industrial chain makes it possible to divide the stock interest of the industrial chain. 2021 is more typical. The global photovoltaic installed capacity will increase by about 20-30%, but the profit of the silicon material segment will increase several times, and the cell and module segment will even lose money. It is to grab the cake of others, not to make the cake bigger.
However, the nature of the photovoltaic industry determines that this local game is difficult to disappear unless all players are fully integrated, but this is impossible, especially the barriers to entry in the silicon material sector are very large.
Therefore, it is very important for photovoltaic enterprises to study and judge the development direction of the industrial chain when technological innovation is the primary productive force, so as to avoid being harvested in the game of the industrial chain.
For this reason, it is not difficult for us to understand why silicon wafer giants took the lead in starting a price war. Partial game is a strategic issue for photovoltaic companies. If the price of silicon materials is expected to fall, silicon wafers, which are closely downstream, will naturally bear the brunt. Inevitable.
In 2022, the photovoltaic industry chain game will continue, but the style has quietly changed.