China solar profitability inflection remains structurally divergent: glass improves first while upstream remains under pressure

Overview

This report is part of Goldman Sachs' China solar profitability tracking series, which observes monthly trends in supply-demand, inventory, spot prices, input costs, cash gross profit, and EBITDA margins across solar subsegments. The core conclusion for July is that the profitability inflection point has not emerged synchronously across the value chain: glass has seen a recovery in price and margins due to supply cuts and better inventories, module margins improved slightly, but polysilicon, wafers, cells, and film remain dragged down by falling prices and weak demand.

Core views

Goldman Sachs believes the solar value chain is in a phase of structural divergence. The glass segment has already shown an initial positive inflection point, with leading players coordinating a 10% production cut through kiln cold repairs and other measures; inventory days fell from 60 days in June to 50 days by end-July, and are expected to decline to 35 days by September, driving roughly a 10% increase in glass prices in 2H26. By contrast, although the new polysilicon energy-consumption standards are stricter than the draft, their impact on effective supply is limited because most operating capacity can already comply or can be upgraded to comply. Goldman Sachs expects average polysilicon capacity utilization to remain at a low level of around 30% in 2026E-2030E. Demand also remains weak, with global module demand down 15% YoY in June and down 44% YoY in 1H26, below the full-year forecast trajectory.

Analysis framework

The report uses a monthly value-chain tracking framework, combining implied module demand from China installations, China module exports, and U.S. AC-side installations to estimate global module demand. It then combines output by subsegment, downstream module production, producer inventory days, spot prices, and input costs to derive cash gross margins and unit gross profit changes across different links of the chain. Stock views are then selectively ranked based on segment price inflection points, cost changes, order opportunities, valuation multiples, and target-price methodology.

Methodology notes

• Industry supply-demand trackingChina Solar Profitability Tracker

  Monthly tracking of solar value-chain supply, demand, inventory, and profitability

  This framework tracks monthly supply-demand and inventory dynamics across subsegments, and uses spot prices and input costs to derive trends in implied cash gross profit and EBITDA margins for covered companies.

• Profitability estimationSpot price implied cash GPM

  Spot-price-implied cash gross margin

  The report estimates cash gross margins across each segment using spot prices and input costs, but explicitly notes that this estimate does not include company-level price discounts or premiums and may also differ from actual company operations due to specific factory shutdown or maintenance schedules.

• Valuation methodologyEV/EBITDA and P/B target price methodology

  Target price valuation

  Maxwell and Hangzhou First primarily use 2027E EV/EBITDA discounted back to 2026E; Longi and Xinyi Solar use 2026E P/B valuation based on the historical regression relationship between P/B and ROE.

• Factor analysisGS Factor Profile

  Growth, Financial Returns, Multiple, and Integrated percentile comparison

  Goldman Sachs Factor Profile compares stocks with the market and industry peers across growth, financial returns, valuation multiples, and integrated percentiles, providing supplementary context for stock-level investment views.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Maxwell

  One of the report's preferred stocks, rated Buy

  Strengths

  New application opportunities may provide order and valuation support, with a target price of Rmb278.

  Weaknesses

  Weaker-than-expected demand for new applications could reduce willingness for experimental capital expenditure.

  Comparison

  Compared with upstream material segments, Maxwell's appeal comes more from equipment and new application order opportunities.

  Risks

  Cancellation of new application orders, tighter export controls on solar equipment, and slower-than-expected development in the semiconductor industry.

• Hangzhou First

  One of the report's preferred stocks, rated Buy

  Strengths

  Benefiting from solar film price hikes and potential expansion in unit profitability, with a target price of Rmb20.

  Weaknesses

  Insufficient demand would affect capacity utilization and film ASP.

  Comparison

  It is more aligned with the materials segment in the value chain, but the report believes there is still room for improvement in film prices and unit profitability.

  Risks

  Solar installations below expectations, slower-than-expected capacity expansion, slower-than-expected development in high-end non-solar businesses, and rising procurement pressure for raw materials such as resin.

• Longi

  One of the report's preferred stocks, rated Buy

  Strengths

  ESS potential, EBITDA resilience from declining upstream prices, and mid-cycle upside from BC technology, with a target price of Rmb14.2.

  Weaknesses

  Still affected by end-market solar demand and the pace of technology iteration.

  Comparison

  Compared with pure upstream players, Longi has stronger resilience against pressure due to benefiting from falling upstream prices.

  Risks

  If demand exceeds expectations and supply-side policy execution is strong, Poly/Glass price rebounds may exceed expectations; declines in cost-reduction technology progress, BC development, and ESS development may also fall short of expectations.

• Xinyi Solar

  One of the report's preferred stocks, rated Buy

  Strengths

  Improving glass inventories and the price inflection point provide the main positive catalysts, with a target price of HK$2.8.

  Weaknesses

  Profitability is sensitive to solar glass ASP and raw material and energy prices.

  Comparison

  Under the report's divergence framework, Xinyi Solar directly corresponds to the core theme of the glass segment improving first.

  Risks

  Solar glass ASP below expectations, raw material and energy prices above expectations, and slower-than-expected overseas capacity expansion.

• Rod Poly

  The report remains cautious

  Strengths

  Stricter energy-consumption standards may raise expectations for supply-side constraints.

  Weaknesses

  Most operating capacity can comply or be upgraded to comply, limiting the impact on effective supply; average utilization in 2026E-2030E is expected to be only around 30%.

  Comparison

  Compared with glass, Rod Poly has not yet shown a clear profitability inflection point and remains in a segment facing greater supply and price pressure.

  Risks

  Persistently low utilization, continued pricing pressure, and actual policy constraints proving weaker than market expectations.

Key data

• Average solar value-chain price change in July-7% MTDThe report states that average prices across the entire value chain fell 7% in July.
• Glass price change+6% MTDThe main explanation for the price increase is that inventory days improved from 57 days in June to 50 days by end-July.
• Glass inventory outlookDown to 35 days in SeptemberGoldman Sachs expects seasonal demand recovery to drive further declines in glass inventories.
• 2H26 glass price outlookApproximately +10%Based on the judgment of a positive inflection driven by supply cuts and inventory destocking.
• Polysilicon energy-consumption standardExisting Rod Poly capacity ceiling of 6.3kgce/kg or 51KWh/kgThe new standard takes effect in January 2027 and is stricter than the draft standard of 6.4kgce/kg or 52KWh/kg.
• Polysilicon capacity utilization outlookAverage around 30% in 2026E-2030EGoldman Sachs believes the energy-consumption standard has limited impact on effective supply, and utilization will remain depressed.
• Global module demand in June37GW, +33% MoM, -15% YoY1H26 was 232GW, down 44% YoY.
• China installations in June12.5GW, -13% YoY1H26 was 72GW, down 66% YoY.
• China module exports in June17GW, -24% YoY1H26 was 123GW, down 6% YoY; the Middle East, EU, and APAC weakened YoY, while Africa grew 11% YoY.
• Subsegment production/demand ratio108% in July, 110% in JuneIndicates a slight improvement in the supply-demand ratio.
• Producer inventory days48 days in July, 56 days in JuneImprovement in producer-side inventory measured on a demand basis.
• Maxwell target priceRmb278Buy rating, based on 22X 2027E EV/EBITDA discounted to 2026E at 8.3% CoE.
• Hangzhou First target priceRmb20Buy rating, based on 17X 2027E EV/EBITDA discounted to 2026E at 10.7% CoE.
• Longi target priceRmb14.2Buy rating, based on 2.3X 26E P/B.
• Xinyi Solar target priceHK$2.8Buy rating, based on 0.8X 26E P/B.

Impact & implications

The investment implication is that the solar industry is still not suitable for a uniform recovery thesis. Glass and parts of the module chain are closer to a profitability inflection point, while upstream polysilicon and wafers still face risks from ample supply, pricing pressure, and low utilization. At the portfolio level, the report recommends selective positioning around new application opportunities, film price increases and unit-profit expansion, the glass price inflection point, ESS potential, and resilience from falling upstream prices, rather than buying the entire value chain broadly.

Risks

• Global module demand recovery may be weaker than expected, causing continued pressure on value-chain prices and capacity utilization.
• The polysilicon energy-consumption standard has limited constraints on effective supply, which may prolong upstream oversupply.
• If coordinated glass production cuts or seasonal demand recovery fall short of expectations, the inventory destocking and price increase thesis may weaken.
• Raw material and energy prices above expectations may squeeze profits for glass, film, and module companies.
• Equipment export controls, cancellation of new application orders, and slower-than-expected development of ESS or BC technology may affect the earnings and valuations of key recommended companies.
• Goldman Sachs discloses that it has an investment banking relationship with LONGi Green Energy Technology Co.; investors should pay attention to potential conflict-of-interest disclosures.

What to watch

• Whether glass inventories continue to decline from 50 days after end-July toward the expected 35-day path by September.
• Whether glass prices rise by about 10% in 2H26.
• Before the mandatory polysilicon energy-consumption standard takes effect in January 2027, the actual proportions of shutdowns, retrofits, and compliance.
• Whether global module demand recovers from the low levels of 37GW in June and 232GW in 1H26, and approaches the FY26E forecast path of a 12% YoY decline.
• Monthly changes in China installations, module exports, and implied demand from U.S. AC-side installations.
• Whether film price increases can translate into unit-profit expansion for companies such as Hangzhou First.
• Maxwell's new application orders, Longi's ESS and BC progress, Xinyi Solar's overseas expansion and changes in glass ASP.