Solar Industry Continues to Sustain Losses, Downstream Modules Benefit Short-Term

Overview

Deutsche Bank released May 2026 monthly report on Chinese Solar Industry, pointing out industry still faces pressure from weak demand and persistent losses, but performance across industry chain links diverges. Although May module production expected to rise slightly MoM, overall demand remains sluggish, driving upstream polysilicon prices to historical lows, putting most producers in negative cash gross margin state. In contrast, downstream modules segment saw significantly improved and positive gross margins due to sharp upstream cost decline, becoming one of few profitable links in current value chain. Report thus bullish on short-term downstream module companies like Longi Green Energy, while bearish on Tongwei Co., Ltd. which is heavily impacted by polysilicon price crash.

Core views

Demand Side: May solar demand saw slight rebound, but overall remains weak. According to SMM data, affected by April low base, May module planned production estimated to rise 10% MoM to 35GW. However, current monthly demand significantly below 2025 47GW monthly average, mainly dragged by weakening domestic China demand (Jan-Apr 2026 down YoY 31%). March 2026 China new PV capacity installed 8.9GW, down significantly 56% YoY. DB estimates 2026 China PV demand 215GW, down 32% YoY. Upstream Polysilicon: Price and profit pressure huge. April polysilicon price fell 13-15% MoM, YTD decline 39-40%. As of early May 2026, rod silicon and granular silicon spot prices fell to 35 CNY/kg and 34 CNY/kg respectively, flat with June 2025 historical low. Although prices stabilized short-term after NDRC April 17 meeting, no recovery signs, most producers currently in negative cash gross margin state. May polysilicon planned production still resilient, at 89.5k tons, up 3% MoM, industry avg utilization rate only 27%. Midstream Silicon Wafer & Cells: Wafer inventory eased, cell prices stabilized. April wafer inventory down 12% MoM to 24GW, mainly due to cell manufacturers accelerating procurement. Wafer prices fell 8-10% MoM following upstream polysilicon price drop, unit cash gross margin roughly breakeven, net gross margin still negative. Cell side, April prices down 13-17% MoM recently stabilized, some manufacturers attempt small price increase. Due to lower upstream costs, cell cash gross margin remains positive. April TOPCon cell avg utilization rate 53%, paste costs high, accounting over 40% of cell production costs. Downstream Modules: Short-term position good. Module prices stable in April, given sharp upstream cost reduction, module gross margin significantly improved, producers in relatively favorable position in value chain. However, given overall demand remains sluggish, price still exists risk of correction. PV Glass: Inventory pressure intensifies, margin under pressure. Late April PV glass industry inventory days increased 14% MoM to 49 days. 2.0mm and 3.2mm product prices fell 8% and 6% MoM respectively, estimated head and secondary tier manufacturers' cash gross margins both negative. Individual Stock Views: Longi Green Energy (601012.SS) as downstream module leader, beneficiary of short-term value chain stability, maintain Buy rating, target price CNY 25.00. Tongwei Co., Ltd. (600438.SS) due to polysilicon price crash, high inventory levels and higher than peers debt-to-asset ratio, viewed as major victim, maintain Sell rating, target price CNY 13.00.

Analysis framework

Report adopts top-down analysis of industry chain, first assess overall demand environment, then along "Polysilicon-Silicon Wafer-Solar Cell-Module-Auxiliary Materials (PV Glass)" value chain order, analyze supply/demand, inventory, price and margin changes of each link one by one. By comparing cash margin status of each link, identify current value chain weak profit links (upstream polysilicon, PV glass) and relatively strong links (downstream modules, cells). Finally combine individual stock business structure, inventory level and financial leverage to map industry chain logic to specific companies, give differentiated investment advice.

Methodology notes

• Industry/Industrial Analysis FrameworkUpstream/Midstream/Downstream Industry Chain Transmission

  Industry Chain Price and Profit Transmission Mechanism

  Report analyzes how upstream raw material (polysilicon) price decline transmits step-by-step to midstream (silicon wafer, cells) and ultimately improves downstream (module) gross margin, showing profit redistribution process inside industry chain. This analysis helps understand why downstream may be more resilient than upstream during weak demand.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Supply/Demand Balance and Utilization Rate Analysis

  Report calculates industry avg utilization rate (e.g. polysilicon 27%, TOPCon cell 53%) by comparing planned production, inventory changes and demand forecasts of each industry, to judge degree of oversupply and industry prosperity. Low utilization rate usually means severe oversupply and price pressure.

Asset mapping & comparison

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

• Longi Green Energy (601012.SS)

  Benefit: As downstream module leader, benefits from margin improvement brought by sharp upstream cost decline

  Strengths

  Module segment short-term margin reversal to positive, value chain position relatively better

  Comparison

  Compared to upstream polysilicon manufacturers, less negatively impacted by price decline, instead benefits from cost decline

  Risks

  Overall demand slump may lead to module price correction again

• Tongwei Co., Ltd. (600438.SS)

  Hurt: As main polysilicon producer, directly impacted by polysilicon price crash

  Weaknesses

  High inventory levels, debt-to-asset ratio higher than peers, cash gross margin negative

  Comparison

  Compared to downstream module manufacturers, facing more severe price pressure and financial risk

  Risks

  Polysilicon price continued slump, financial pressure from high leverage, inventory impairment risk

Key data

• May module planned production35GWMoM rise 10%, still below 2025 monthly avg 47GW level
• Polysilicon spot price34-35 CNY/kgFell to historical low, MoM decline 13-15%
• Polysilicon industry avg utilization rate27%Shows severe supply oversupply
• March 2026 China PV new capacity8.9GWSignificant YoY decline 56%
• 2026 China PV demand forecast215GWYoY decline 32%
• Silicon wafer inventory24GWEnd of April data, MoM decline 12%
• PV glass inventory days49 daysEnd of April data, MoM increase 14%

Impact & implications

Report believes although entire solar industry still faces pressure from weak demand and anti-involution measures uncertainty, value chain price stabilization is short-term positive for downstream module sector, making it one of few profitable links currently. For investors, this means during overall industry downturn, should focus on downstream leading companies with cost advantages and pricing power, while avoiding heavy-asset upstream manufacturers troubled by upstream price crash and high inventory. Tongwei Co., Ltd. faces greater financial risk due to high leverage and high inventory, while Longi Green Energy is expected to benefit from module margin improvement.

Risks

• Overall solar demand continues to be weak, falling short of expectations
• Specific details of anti-involution measures exist uncertainty
• Module price still exists risk of correction due to insufficient demand
• Polysilicon manufacturers continuing negative cash gross margin may lead to industry reshuffling or supply interruption

What to watch

• Recovery situation of domestic China solar demand
• Specific landing details of government anti-involution measures and their impact on supply side
• Whether polysilicon price can stabilize or rebound at historical lows
• Sustainability of module segment gross margin