- China will remain a dominant player in global solar equipment supply chains, due to its large economies of scale and improving product quality and efficiency.
- While the Covid-19 pandemic will drive some diversification of supply chains or increased localisation, Chinese solar manufacturers have also expanded their geographic production bases outside of China, which will reduce their risk exposure to political or economic disputes.
We expect Chinese solar manufacturers to retain a dominant market share in the global solar supply chains over the coming years. Across H1 2020, Chinese companies accounted for 7 out of the 10 largest solar manufacturers based on module capacity. This occured against the backdrop of the Covid-19 pandemic, where lockdowns have resulted in some supply chain disruptions. We believe that these companies will remain largely resilient, and a backlog of orders will likely result in a surge in production across H2 2020 and 2021. We highlight LONGi Solar in particular, which has seen rapid growth in recent years – rising to the top ten for the first time in 2019, and to second-largest in the world in 2020.
We believe that China will remain ahead of its competition due to its large economies of scale, coupled with improving product quality and efficiency. China already accounts for more than 70% of the global supply in 2019, and is much more competitive globally as the equipment produced remain cheaper and of a higher quality. This is also supported by large investments into research and development, which has resulted in continued advancements in solar technologies, and higher-efficiency PV modules and cells. China’s ability to scale up these improving technologies commercially will continue to give Chinese solar manufacturers a competitive edge in an increasingly competitive market. For example, major solar manufacturers continue to make advancements on the commercial deployment of solar panels that are equal to or exceed 500 watts (W) capacity – marking an important milestone in a highly competitive market. Most notably, Jinko Solar launched its new generation of 610W Tiger Pro high-efficiency monocrystalline TR solar modules and its Building Integrated Photovoltaics product series in August 2020, which is currently the highest capacity module in the market. These more powerful and efficient models will allow developers to use fewer modules in order to hit their desired capacity targets, resulting in reduced requirements for racking, tracking and balance of system components, labour hours, and in some cases land. This will, in turn, lead to substantial declines in total system costs. We expect that the development of ultra-high efficiency modules will help these companies either maintain, or gain, market share as developers continue to look for ways to reduce costs.
The solar manufacturing sector has also started to see some consolidation, with an increasing number of smaller players being driven out by the top ten suppliers. According to PV Infolink, the top ten largest manufacturers combined account for approximately 85% of global demand across the first half of this year. In December 2019, the decision by SunPower Corp, one of US’s largest solar manufacturers, to restructure their business away from solar manufacturing also highlights the challenges facing non-Chinese solar manufacturers in maintaining global market share.
Chinese solar manufacturers have also expanded their manufacturing bases outside of China, which will increase their resilience over the coming years. The Covid-19 pandemic has resulted in new geopolitical uncertainties, particularly regarding China. In addition, the severe supply chain disruptions stemming from a series of global lockdowns have led many markets to reconsider their dependence on China for imports of these equipment. As such, we believe that these manufacturers based in China will face increasing risks of trade barriers or from competition in markets where governments are actively supporting local manufacturing. Many markets already have anti-dumping duties against solar equipment imports from China, and there are risks of these being extended or increased over the coming quarters. A diversified geographic base for its production will help to reduce the risk exposure of these manufacturers. In particular, we highlight Southeast Asia is becoming an attractive destination for these new production facilities, particularly in Malaysia, Thailand and Vietnam, where we see an increasing number of Chinese solar manufacturers looking to enter or expanding their production capacities in those markets to circumvent some of the aforementioned duties.
For example, Jinko Solar was the first to set up a Chinese solar manufacturing facility in the US, which came into operation in 2019. LONGi Solar and JA Solar already have facilities in Malaysia, while Trina Solar has manufacturing facilities in Thailand and Vietnam. At present, JA Solar is also constructing a manufacturing plant in Vietnam, while LONGi Solar has plans to build one in India. That said, we highlight that no single country can feasibly absorb the large export manufacturing capacity amassed in China over recent years, even as it expands rapidly.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.
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