The journey of Tongwei Co., Ltdcan be likened to a dramatic roller coaster ride, marked by impressive heights and alarming dipsOnce celebrated as the "king of photovoltaic profits," the corporation now faces harsh financial forecastsAs the solar energy sector encounters turbulence, the company's outlook for 2024 has shifted dramatically from profit to anticipated losses exceeding 70 billion yuan, a staggering contrast to the preceding year's net profit of approximately 135.74 billion yuan.

On January 17, 2024, Tongwei made headlines when it publicly announced its forecast for the yearSuch predictions sent ripples through the stock market, with shares closing at 21.17 yuan, reflecting a 2.53% declineThis news, coupled with a market valuation that hovered around 953.07 billion yuan, underscored the investor community's alarm regarding the company's stability amid grim predictions.

Over the past year, the company's financial turbulence has deepened, revealing a magnifying glass over its crippling losses

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From the onset of the fourth quarter in 2023, the fallout began, with reported losses of 27.28 billion yuanThe continuous strain in profitability became more pronounced in the subsequent quarters of 2024, which reported losses of 7.87 billion yuan, 23.43 billion yuan, and 8.44 billion yuan, respectivelyPredictions indicated that the final quarter could see losses soar between 30.26 billion and 35.26 billion yuan, potentially establishing a record for the largest quarterly loss since its stock market inception.

The factors contributing to this financial descent are multi-facetedFirstly, across the solar industry supply chain, market prices have plummeted, with many products persistently priced below production costsSignificantly, the company disclosed an estimated annual impairment loss of around 10 billion yuan across its long-term assets, which impacted its overall financial health

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Despite maintaining positive operational cash flow, these losses are starker against the backdrop of industry-wide struggles, as Tongwei highlighted the more than 30 billion yuan in asset impairment losses incurred in the first three quarters of the year alone.

Tongwei has long been recognized for its robust production capabilities within the photovoltaic marketIn 2023, the company ramped up production facilities across various locations in Sichuan, focusing on materials critical for solar panel fabrication such as silicon materials, modules, and wafersThe ambitious plans set for 2024 to 2026 included reaching a cumulative production capacity of high-purity silicon at approximately 800,000 to 1,000,000 tons, and solar cells at about 130GW to 150GW.

However, these ambitious plans collided with market realitiesBy the end of 2024, Tongwei's production capacity surpassed 900,000 tons of high-purity silicon

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Yet, the nominal production capacity across China reached an astounding 2.57 million tons, more than double the existing market demandThis immense capacity surplus has led to a drastic decline in silicon prices over the past two years, further exacerbating Tongwei's financial woes instead of generating growth as once anticipated.

The company's widened operational scale within the solar panel segment has not been sufficient to offset the detrimental impacts of plummeting product pricesFurthermore, the new 200,000-ton multi-crystalline silicon project launched in Yunnan, set to become operational in May 2024, continues to report losses during the first half of that yearAccording to the company's statements, losses were attributed to both project adjustments and the prevailing unfavorable pricing environment.

Facing mounting challenges, Tongwei has been compelled to reconsider its aggressive expansion strategies

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In a November 2024 investor meeting, company representatives indicated they were exploring production cutbacks due to persistent low silicon pricesThe aim of these reductions is to align production levels with market conditions, reflecting a shift to more economically viable production methods.

On December 24, 2024, Tongwei officially communicated via its WeChat platform the plan to gradually decrease production at four of its high-purity silicon facilities managed by its subsidiary company, Sichuan YongxiangThis strategic decision aims to implement technological improvements and maintenance while controlling outputFuture production plans will hinge on local electricity pricing changes and market dynamics.

The company indicated that these measures are in direct response to the overall stagnant state of the photovoltaic sector, aligning with vital national efforts to alleviate "involution" - a term often used in Chinese business contexts referring to excessive competition leading to diminishing returns

The anticipated effects of these technological upgrades and production cuts are expected to positively influence both the company’s overall operations and its profitability.

Simultaneously, two other industry leaders, Daqo New Energy and GCL-Poly Energy, announced their intentions to lower production, contributing to a significant aggregate reduction in silicon production capacity across the sector, which is anticipated to exceed 1.6 million tons collectively.

This concerted effort among leading firms to cut output is expected to mitigate existing disparities in the supply and demand of multi-crystalline silicon, as evidenced by recent upticks in transaction prices attributed to output declines and deliberate shipping reductionsIn this scenario, rising market prices have prompted producers to gradually elevate their offers, aiming to stabilize the prices of multi-crystalline silicon to sustainable levels.

Currently, all operational multi-crystalline silicon manufacturers in China are reportedly functioning at reduced capacities, with some regions, specifically Sichuan, experiencing adjusted operational rates

The industry outlook suggests that these subpar production levels will persist at least until the end of the first quarter of 2025.

As the photovoltaic sector grapples with ongoing turmoil, the narrative surrounding Tongwei's attempt to acquire Runyang Co., Ltdhas become increasingly enigmaticOn November 12, 2024, after trading hours, Tongwei issued an urgent announcement indicating that discussions regarding the acquisition were ongoing, revealing potential adjustments or even termination risks concerning the original terms.

Amid this backdrop, there has been significant media speculation regarding Runyang's operational status, particularly regarding its facilities in Thailand, which have reportedly halted production – a key point from Tongwei's perspective to justify the acquisitionIn mid-August 2024, Tongwei put forth a proposal to acquire 51% of Runyang’s shares for a total sum of 5 billion yuan, following Runyang's unsuccessful initial public offerings (IPOs).

During a successful growth trajectory from 2020 to 2022, Runyang ranked among the top three global exporters of battery products

Even in 2023, it was listed in the top five, while Tongwei claimed the top spot globallyTongwei's second-generation leader, Liu Shuqin, has been at the helm of this acquisition, which many industry insiders view as a strategic move to consolidate shared business interests and solidify its dominant position in the industry, marking it as one of the largest mergers in the photovoltaic sector's history.

However, underlying uncertainties cloud this prospective mergerThe trade landscape has been complicated by tariffs and geopolitical factors, causing rising risks in overseas markets like Southeast AsiaObservers speculate that Chinese firms with operations overseas may pivot towards domestic capacities as trade tensions impact production decisions, shifting focus towards their US-based endeavors instead.

Further complicating matters for Tongwei is Runyang's ongoing reputational challenges combined with its own profitability struggles, which heighten the pressure surrounding the proposed acquisition