25 August 2025 | 7:16PM CST China Solar: Tracking profitability inflection Early sign of module price hike emerged in Aug, but sustainability in question given worsening S/D outlook Our China Solar Profitability Tracker follows monthly supply/demand and inventory dynamics by sub-sector, and the spot prices/input costs implied cash GP & EBITDA margin trends for companies under our coverage. Key highlights in Aug MTD: Research | Equity Mengwen Wang +86(21)2401-8932 | mengwen.wang@goldmansachs.cn Goldman Sachs ...

Flash | 20 Aug 2025 11:47:30 ET │ 10 pages China Renewable Energy PRC Solar Module Export Value Dropped while Volume Rose in July; Inverter Export Growth from Anhui CITI'S TAKE Mild module production output decline in August – China module production volume was +1.5% yoy to 330.4GW in 7M25, according to SMM. The industry body estimates the monthly module output to decline 4.6% yoy and 0.6% mom to 46.8GW in August likely due to lower solar installation demand in China. China's solar installation was +106.5% ...

Summary of China Solar Industry Conference Call Industry Overview - The conference call focused on the **China Solar** industry, particularly the dynamics of supply, demand, and pricing within the solar value chain [1][3][20]. Key Highlights - **Profitability Tracker**: The China Solar Profitability Tracker monitors monthly supply/demand and inventory dynamics, along with cash gross profit (GP) and EBITDA margin trends for covered companies [1]. - **Price Increases**: A policy-driven price hike occurred in July, with upstream prices for Poly increasing by **34%** and Wafer by **21%**. Domestic Poly future quotes surged over **60%**, reaching **Rmb49-51/kg** [6][20]. - **Demand Weakness**: Despite price increases, transaction volumes remained muted due to weak demand. Global module demand fell by **67% month-over-month** and **17% year-over-year** to **45GW** in June [6][21]. - **Cyclical Bottom**: The industry is believed to be at a cyclical bottom, with a potential inflection point expected around **2H26** as demand turns [3]. Profitability Insights - **Cash Profitability Improvement**: Spot price implied cash profitability improved for Tier 1 players, with upstream segments showing stronger sequential recovery [8][11]. - **Average Cash GPM Changes**: The average cash gross profit margin (GPM) for Poly was **28%**, Wafer **5%**, Cell **1%**, Module **11%**, and Glass **-12%** [11]. Inventory and Production Dynamics - **Production Forecast**: Poly production is expected to increase by **7%** in July, while other segments like Wafer and Cell are projected to decline by **11%** and **5%**, respectively [13]. - **Inventory Days**: Inventory days are likely to rebound to **39 days** in July from **34 days** in June, indicating intensifying inventory pressure in the Poly segment [14][17]. Investment Recommendations - **Preferred Segments**: The report recommends a "Buy" on Cell & Module and Film, while advising a "Sell" on Glass, Poly, Wafer, and Equipment [3]. - **Long-term Outlook**: Mid-to-long run normalized profitability is expected to remain low due to a slowdown in demand growth in China [3]. Additional Insights - **Market Dynamics**: The successful pass-through of upstream price hikes to downstream operators is crucial but appears challenging given the softer demand outlook [21]. - **Global Module Demand Forecast**: The full-year installation forecast suggests a **42% year-over-year** decline in global module demand, averaging **33GW** per month in **2H2025** [6]. This summary encapsulates the critical insights and data points from the conference call, providing a comprehensive overview of the current state and future outlook of the China Solar industry.

Investment Rating - The report indicates a shift in investment ratings for the EV and solar industries, with a more favorable outlook for energy storage systems (ESS) and critical minerals compared to solar and wind [16]. Core Insights - The "One Big Beautiful Bill" accelerates the phaseout of EV subsidies, expiring on September 30, 2025, compared to December 31, 2032, under the original IRA [16]. - The report highlights stricter restrictions on foreign entities, particularly from China, affecting the eligibility for investment tax credits (ITC) and advanced manufacturing production credits (AMPC) [16][17]. - There is a notable increase in domestic content requirements to qualify for additional credits, which may impact the cost structure for manufacturers [16][17]. Summary by Sections Part 1: EV Consumer Tax Credits - The final assembly of EVs must occur in North America to qualify for tax credits, with a maximum credit of $7,500 [6]. - Key requirements include MSRP limits of $80,000 for SUVs and $50,000 for other vehicles, with critical minerals and battery component restrictions starting in 2024 and 2025 respectively [6][7]. Part 2: Residential Clean Energy Credit - The residential clean energy credit remains at 30% for expenditures through December 2032, decreasing to 26% in 2033 and 22% in 2034 [10]. - No credits will be available for expenditures made after December 31, 2034 [10]. Part 3: ITC - The business tax credit for investment in zero-emission power and energy storage property is set at 30% of capital expenditures, with additional bonuses for domestic content [12]. - The credit rate will phase out based on the date of construction start, with specific thresholds for solar and energy storage systems [12]. Part 4: Advanced Manufacturing Production Credit - The AMPC will phase out for eligible components produced and sold, with a stricter non-PFE threshold compared to the Senate draft [13]. - The report emphasizes that projects with "effective control" by prohibited foreign entities will not receive credits, impacting U.S. battery production using Chinese components [16][17]. Key Changes vs. IRA - The report outlines significant changes from the original IRA, including the introduction of PFE restrictions and a more stringent domestic content requirement for tax credits [16]. - The overall stance on China has become tougher, with implications for U.S. manufacturers relying on foreign supply chains [16].

Investment Rating - The report maintains a cautious outlook on the solar industry, expecting significant capacity cuts and a decline in profitability across the value chain, particularly in the upstream segments [3][5]. Core Insights - The report indicates a potential rush in installations in May 2025, driven by a policy cutoff, but anticipates a deeper demand pullback in the second half of 2025, with global module demand expected to decline by 40% year-over-year [4][5]. - The pricing dynamics across the solar value chain show a decline in spot prices for most segments, with glass experiencing the most significant drop of 10% month-to-date [19][20]. - The upstream profitability is expected to deteriorate further, while downstream segments are projected to remain more resilient [7][19]. Summary by Sections Sector Overview - Anticipated capacity cuts of 17% across the main value chain in 2025-2026 due to cash burn and market access issues [3]. - A forecasted decline in solar capital expenditure by 55% year-over-year in 2025, with average capacity utilization rates dropping to 59% from 2025 to 2030 [5]. Pricing Trends - As of June 19, 2025, spot prices for poly, wafer, cell, module, glass, and film have declined by an average of 6%, 5%, 3%, 0%, 10%, and 3% respectively month-to-date [19]. - The report highlights that module pricing has remained stable, contrasting with the declines seen in other segments, particularly glass [19][20]. Demand and Supply Dynamics - Global module demand surged by 74% month-over-month and 193% year-over-year in May 2025, primarily due to a rush in installations in China [4]. - The report projects that inventory days will rebound to an average of 33 days in June from 27 days in May, indicating increased inventory pressure across the value chain [13][16]. Profitability Outlook - Cash gross profit margins (GPM) for upstream segments are expected to decline, while downstream players are likely to maintain more stable margins [7][10]. - The report suggests that despite the anticipated price declines, profitability may remain resilient due to greater upstream price cuts [20].

Investment Rating - The report maintains a cautious outlook on the solar industry, expecting significant capacity cuts and a decline in capital expenditures, leading to a weaker pricing outlook and flattened profitability curve [4]. Core Insights - The profitability for solar value chain segments is likely to fall below pre-rush installation levels in May, with cash profitability expected to deteriorate to average levels seen in Q1 2025 [2][4]. - A rapid decline in upstream pricing is observed due to weaker demand and aggressive low-pricing strategies by Tier 2-3 players, impacting the overall market dynamics [2][19]. - Proactive price stabilization efforts by leading players are crucial to monitor in June, as inventory pressures are expected to continue increasing [2][14]. Summary by Sections Pricing Trends - As of May 15, 2025, spot prices for Poly/Wafer/Cell/Module/Glass/Film/Inverter in China showed average declines of -2%/-14%/-3%/-3%/-6%/-3% MTD, and -8%/-17%/-7%/-2%/+8%/+1% compared to pre-rush installation levels [2][19][20]. - Glass prices appear more resilient compared to other segments, primarily due to lower inventory days [20]. Profitability Metrics - Spot price implied cash gross profit margins (GPM) for various segments showed significant declines, with Tier 1 cash GPM for Poly/Wafer/Cell/Module/Glass/Film averaging flat/-13pp/+1pp/-4pp/-3pp/flat MTD [10]. - Monthly average cash profitability in May is likely to deteriorate to levels seen in Q1 2025, indicating a challenging environment for the industry [2][7]. Production and Inventory Dynamics - Production volumes are expected to decline by an average of 4% month-over-month in May, with specific declines in Poly/Wafer/Cell/Module [12]. - Inventory days are likely to rebound to an average of 30 days in May from 25 days in April, indicating a higher production-to-demand ratio [13][15]. Future Outlook - The report anticipates deeper solar capital expenditure declines of -55% year-over-year in 2025, with lower capacity utilization rates expected [4]. - Continued supply increases for Glass are projected, which may lead to a rapid inventory restock and a potential price cut to Rmb12/sqm in Q3 2025 [3][14].

Investment Rating - The report maintains a "Buy" rating on Cell & Module and Film, while it has a "Sell" rating on Glass, Poly, Wafer, and Equipment [4]. Core Insights - The profitability of the solar industry is expected to face deterioration for Cell and Module, while Glass may see temporary improvement due to price hikes [6][14]. - The report highlights a significant decline in solar capital expenditure, projected at -55% year-over-year in 2025, alongside a lower capacity utilization rate averaging 59% from 2025 to 2030 [4]. - The report indicates that upstream pricing in China has started to lose momentum as the peak of rush installations is ending, while US module pricing has jumped due to a 90-day tariff exemption [19]. Summary by Sections Pricing Dynamics - As of April 17, 2025, month-to-date (MTD) spot prices for Poly/Wafer/Cell/Module/Glass/Film/Inverter in China showed average changes of -1%/-0.3%/-7%/+0.5%/+5%/+0%/+1%, while overseas module prices increased by 20% in the US [19]. - The report notes that inventory days across the value chain have improved to below 20 days, except for Poly at 40 days and Glass at 27 days, driven by strong domestic demand [13]. Production and Demand - Production volumes across the solar value chain are expected to recover significantly in April, with Poly/Wafer/Cell/Glass/Module projected to increase by +4%/+17%/+29%/+9%/+31% month-over-month [12]. - The report anticipates a decline in inventory levels across the value chain, with a lowered production-to-demand ratio at 94% in April compared to 104% in March [15]. Profitability Trends - The average cash gross profit margin (GPM) for Poly/Wafer/Cell/Module/Glass/Film in April showed changes of -0.3pp/+0.4pp/-11pp/-6pp/+3pp/+1pp, indicating a decline in profitability for Cell and Module [10]. - Monthly average cash profitability for the companies covered is expected to remain largely flat month-over-month in April, although it is better than the first quarter of 2025 [7].