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EQUITYRESEARCH|July11,2024|4:56PMCST

ChinaCleanTechnology:Solar

Industryre-shapinginfocus,supplyre-balancinglikelyinthenext12months

WebelievetheChinasolarindustryislikelyheadingintothefinalstageofthecurrentdownturnaftera

massivecapacityexpansionin2023/1H24and50%-90%ASPdeclinesfrompeakacrossthemainvaluechain.Chinasolarmainvaluechainhasturnedwidelylossmaking,andweexpecttheindustrytorecorda

cashoperatinglossofRmb131bnin2024Eanda46%/34%yoycapexdeclinein2024E/2025E.OurillustrativestresstestscenarioanalysissuggeststhatforsomeTier1players,FCFburnmaynotbelongerthan8-10

months;whilenonTier-1playerscouldfaceelevatedliquiditypressuregivenmuchfewerprofitsaccumulatedduring2021-2023.

Moreover,wehavestartedtoseeearlysignsofencouragingpolicystancetocurbnewcapacityandpredatorypricing,whichinourview,shouldbodewellforacceleratedindustryconsolidationtowardsleaderswithstrongB/S,R&Dandcostadvantage.Onsupplyre-balancing,weexpecttheendofacyclicalbottomby2025Eand

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ASPtostabilizein2025Ewith5-10%yoyreboundsupportedbystillsoliddemandoutlook.Webelievethenext12monthswouldbethemostinterestingtimetozoomintothesolarsectortolookforlongrunwinners.

Inourcompanionnote,weinitiateon13stocksacrossthesolarvaluechain:wepreferinverters(Buyon

Sungrow)andmaterials(BuyonFlatH/XinyiandHZFirst).Withinthemainvaluechain,wepreferstrongerBalancesheets:Daqo(BuyonADR/NeutralonA)/Longi(Neutral)vs.GCL(Neutral)/TongweiandTCL

Zhonghuan(bothSell-rated).Forequipment,weareSellratedonMaxwellandNeutralonSZS.C.

Inthisreport,weprovidemoredetailson1)oversupplyassessment;2)howthisdowncycleisdifferent;3)

whattolookforinthenext12months;and4)ourvaluationframework.

JacquelineDu+86212401-8948

jacqueline.du@GoldmanSachs(China)SecuritiesCompanyLimited

MengwenWang+86212401-8932

mengwen.wang@GoldmanSachs(China)SecuritiesCompanyLimited

ZhihanYe

+86212411-8029

zhihan.ye@

GoldmanSachs(China)SecuritiesCompanyLimited

GoldmanSachsdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthe?rmmayhaveacon?ictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ForRegACcerti?cationandotherimportantdisclosures,seetheDisclosureAppendix,orgoto

/research/hedge.html.Analystsemployedbynon-USaf?liatesarenotregistered/quali?edasresearchanalystswithFINRAintheU.S.

TheGoldmanSachsGroup,Inc.

GoldmanSachsChinaCleanTechnology:Solar

TableofContents

PMSummary4

Enteringaperiodofindustryre-shapingwitha40%-100%oversupplyacrossthemainvaluechain10

Notapolicy/demandshockthistime15

Expectendofacyclicalbottomby2025E20

Stockview:Preferstrongbalancesheetsanddownstream28

Appendix:Celltechproduction?owandkeyplayers34

Appendix:Keyriskssummary35

DisclosureAppendix36

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GoldmanSachsChinaCleanTechnology:Solar

Exhibit1:Industryre-shapinginfocus:weforecast46%/34%yoyindustrycapexdeclinein2024E/2025E,andASPtostabilizein2025Ewith5%-10%yoyrebound

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Source:CPIA,PVInfolink,SiliconChina,Oilchem,Wind,Companydata,GoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChinaCleanTechnology:Solar

PMSummary

Enteringaperiodofindustryre-shapingwitha40%-100%oversupplyacrossthe

mainvaluechain:WebelieveChinasolarindustryisheadingintothe?nalstageofa

downturncycle,orare-shapingperiodafter1X-2Xcapacityexpansionin2023-early

2024and50%-90%ASPdeclinesfrompeakacrossthemainvaluechainlikelyleading

tooperatinglossforalmostalltheindustryplayersfrom2Q24basedonourestimate.

Assolarindustryisdigestinga40%-100%oversupplyacrossthemainvaluechainper

ourestimateswithupstreampolyhavingthehighestoversupply,weexpecttheindustrytorecordanoperatinglossofRmb131bnin2024E,withourcoveragecompanies’

earningsforecastssubstantiallybelowcurrentWindconsensusestimates.

Notapolicy/demandshockthistime,stillexpect+12%addressabledemand

growthinto2024E:UnlikepreviousdownturnsthatweretriggeredbydemandshockasaresultofEUtariffhikein2012and“5/31”policyinChinaduring2018thatreducedthelevelofsubsidyforsolarfarmsanddistributedsolar,weexpectChinasolarmodule

installations/Chinaplayer’saddressablemoduledemandtoreach241GW/519GWin

2024E(+12%yoyforboth),amoderationafteradrasticincreaseof+147%/70%yoyin2023.Weestimatea15%/14%CAGRover2024-30Eonthebackofrisingcost

competitivenessandlowpenetrationinChinaandglobally.Webelievethebiggest

incrementalcontributionwillstilllikelycomefromChinaduetolowerLCOE(levelizedcostofelectricity)(Exhibit21),especiallyfromcommercial&industrialdemand,

followedbyutility-scaleprojects.ForChinasolarplayers,weexpecttheiraggregate

ex-ChinamarketsharetoremainstableonrisingEMdemandoffsettingDMself-suf?ciencyheadwinds.

Durationandpathofthisdownturnlikelyindebate;weexpecttheendofa

cyclicalbottomby2025E:TheunprecedentedoversupplyinthecurrentdownturnhasledtosharperASPdeclinesoveramuchshorterperiodthanpastdownturns.Our

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illustrativestresstestscenarioanalysissuggeststhatevenforsomeTier1playersinourcoverage,2023cashinhandwouldonlysupportFCFburnfor8-10monthsassumingnoextensiontoexistingdebtoraccesstonewborrowingandnoimprovementinASPs

fromcurrentlevels.Wenotenon-Tier1companiessawfastercashburnnottomentionmuchfewerpro?tsaccumulatedduring2021-2023.Inthemeantime,solartechnologyisevolvingfasterthanever,thuspressinggreaterpressureonoutdatedcapacityintermsofbothmarginsandmarketaccess.Moreover,wehavestartedtoseeearlysignsof

encouragingpolicystancetocurbnewcapacityandpredatorypricing,whichinourview,shouldbodewellforacceleratedindustryconsolidationtowardsleaderswith

strongB/S,R&Dandcostadvantage.Onsupplyre-balancing,weexpecttheendofacyclicalbottomby2025EandASPtostabilizein2025Ewith5-10%yoyrebound

supportedbystillsoliddemandoutlook.

Keymovingfactors/riskstowatchinthenext12months:

nSS/DDdynamicshift:anymeaningfulsupplyre-balanceincludinglarge-scale

productionshutdownsdrivenbyeitherFCFburnorgovernmentpolicies(notinourbasecase).

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GoldmanSachsChinaCleanTechnology:Solar

nBanks’lendingpolicy:anyextensionorwithdrawalofexistingloansbybankscouldimpactindustrycapacity.Whileinourbasecase,weexpectextensionoffundingtocontinueforTier1players,wenoteanysigni?cantbankloanwithdrawalcouldbe

operationallydamagingforsomecompaniesbutitcouldhelpwithafastersupplycut.

nUSTariff:anypotentialUSAnti-dumpingandCountervailingdutyhikesonChina

players’SEAcapacityisariskfactorforChinasolarplayers.WhilewedonottakeaviewonthependingAD/CVDdecisiononASEANproducedmodulesandanytariff

changesgoingforward,oursensitivityanalysissuggestsevery5%tariffincrease

canimpactpro?tsby5%forexportstotheUSfromASEAN,assumingnocostpassthroughandallelseequal.WeexpectUStocontribute7%ofglobalsolarinstallationin2024E-2026E.

nBreakthroughinnewcelltech:althoughthepaceofthenewcelltech-ledindustrycapacityupgradeisexpectedtobeslowinthenearterm,it’skeytomonitorleadingplayers’cost&performanceprogresssuchasTongwei’supcomingGWlevelHJT

pilotproductionandLongi’sN-typeBCvs.TOPCON(de-factotech).Perovskite(Exhibit39),inourview,willlikelybequitedistantaway.

Whattodowiththestocks:

nCashisking:Webelievebalancesheetisthemostimportantfactortoconsider

whennearingtheendofacyclicalbottom.WebelieveourcoveredTier1playersaremuchbetterpositionedthanSuntech/LDK/Yingliwereduringthe2012downturn

giventheirmoreoptimizedbalancesheetswithlowerleverage,lackofforeignbondexposureandlongerdebtmaturityyears.However,anymajoroperating/?nancing

issuesduringthecurrentchallengingperiodcouldposesigni?cantrisksonthe

?nancial.Acrosssolar’smainvaluechain,wepreferDaqo(BuyonADR/Neutralon

A)/Longi(Neutral)vs.GCL(Neutral)/TongweiandTCLZhonghuan(bothSell-rated);

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nPreferdownstream:Weexpectrelativelymodest15%/10%/18%ASPdeclinein

2024Eforinverter/glass/?lmvs.~50%formainvaluechain(Exhibit7)duetobettersupply&demanddynamics(Exhibit17,Exhibit18).BuySungrow(ridingon

overseastailwindwithstrongutility-scaleprojectpipeline),FlatH/Xinyi(bufferfromsodaash/LNGcosttailwind)andHZFirst(bene?tfromN-typesolartechshift);

nAvoidsolarcellequipment:Weproject46%/34%solarcapexdeclinein

2024E-2025Ewithinventory/accountreceivableimpairmentriskonthebackofliquiditypressurefromdownstreamcustomers.SellMaxwell(near-termHJTprogresspricedin)andNeutralonSZS.C.

nOurvaluationframework:(i)Forsolarupstream,weadoptend-2024P/Basourprimaryvaluationmethodology,aswe?ndbalancesheetstrengthwasthemostimportantsharepricedriverduringthe2012downcycle.Forcompanieswith

relativelyweakB/S,weapply0.7-1.1X2024EP/B.ForcompanieswithrelativelystrongB/S,weusethemid-pointof-1STDandtheaveragehistoricalP/Bor0%discountto1XP/B;(ii)Formid/downstream,weapplydiscountedmid-cycle

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GoldmanSachsChinaCleanTechnology:Solar

EV/EBITDAaswevaluethembasedonsustainablethrough-cyclegrowth.

nRisks:(+)Higher-than-expecteddistributedsolardemandunlockedbycheapmodulepriceinoverseasemergingmarketswithpowershortage;(+/-)fasterorslowerthanexpectedsupplycut;(-)Banks’lendingpolicytightening;(-)PotentialUSAD/CVD

tariffhikeonChinaplayers’SEAcapacity;(+)Breakthroughinnewcelltech.

Exhibit2:2024Esolarindustrydownturnwillbemorecomparableto2012than2018inourviewandweforecastRmb131bnindustryoperatinglossin2024E

SolarindustryaverageandTier1players’cashGPMbysub-sector,2011-2030E

Note:Wede?neTier1playersbymarketshare:1)GCLTech,Tongwei,DaqoinPoly,2)Longi,TZE,Jinko,JASolarinWafer,3)Longi,Tongwei,Jinko,JASolar,TrinaSolarinCelland4)Longi,JASolar,Jinko,TrinaSolarinmodule

Source:CPIA,PVInfolink,SiliconChina,Oilchem,Wind,Companydata,GoldmanSachsGlobalInvestmentResearch

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Exhibit3:Weestimatea40%-100%oversupplyacrossthemainvaluechainwithupstreamPolyhavingthehighestoversupply...

Exhibit4:...whileglobalinstallationwillstillgrowby15%p.a.till2030EwithbiggestdemandcontributionstillfromChina

Attributionofincrementalsolarinstallationfrom2023to2030Ebycountryandbytype

Source:CPIA,PVInfolink,SiliconChina,Oilchem,Wind,Companydata,GoldmanSachsGlobalInvestmentResearch

Source:CPIA,IEA,Wind,Companydata,GoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChinaCleanTechnology:Solar

Exhibit5:Webelievethesolarindustryislikelyheadingintothe?nalstageofadownturncycle,orthere-shapingperiod...

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Source:CPIA,PVInfolink,SiliconChina,Oilchem,Wind,UnitedStatesInternationalTradeCommission,UnitedStatesDepartmentofCommerce,SNEC,Companydata,GoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChinaCleanTechnology:Solar

Exhibit6:...andseesigni?cantsharepriceappreciationopportunitiesforsurvivalsoncepolypricestabilizesbutwearenotthereyet

Pastsharepriceperformanceacrosscycles

Note:In-operationplayersincludeLongiA,JinkoUS,CSIQUS;InsolventplayersincludeSuntechUS,YingyiUS,andLDKSolarUSSource:Companydata,ThomsonReuters,Wind,OilchemChina,GoldmanSachsGlobalInvestmentResearch

Exhibit7:Wepreferinverter/glass/?lmvs.solarmaincomponent(poly&waferleastfavored)andcellequipment

SummaryofourASP/capexestimates

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Source:CPIA,PVInfolink,SiliconChina,Oilchem,Wind,Bloomberg,Companydata,GoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChinaCleanTechnology:Solar

Exhibit8:WeapplydiscounttobookvalueforGCL,TZEandTongwei’ssolarbusinessonweakerB/Sthanpeers

FCFburnmonthsunderourstresstestscenariovsourtarget2024EP/Bforsolarmaincomponentplayers

Exhibit9:TPimplied2024EP/Bvs.2027EROE

DaqoreferstoDaqoA(688303.SS)

Source:Companydata,GoldmanSachsGlobalInvestmentResearch

Source:WIND,ThomsonReuters,companydata,GoldmanSachsGlobalInvestmentResearch

Exhibit10:Weinitiate13stocksalongthesolarvaluechain,preferstrongbalancesheetsanddownstream

ChinaCleanTech-Solarsectorcompsheet

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AsofJuly4,2024closing,*denotesontheAmericasConvictionListSource:Companydata,GoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChinaCleanTechnology:Solar

Enteringaperiodofindustryre-shapingwitha40%-100%oversupplyacrossthemainvaluechain

Therewasamassivepricedeclineinthepast6monthsacrossthesolarvaluechain.Wenotethemainstreamproductpoly/waferpricehascomedowntobelowTier-1cashcostlevelsinceApril,andcell/modulepricehasreachedthecashcostline.

OverallpolypricecontinuedtofollowadownwardtrendandfellbelowTier-1cashcostlevelinthebeginningofQ2,drivenbynewsupplyandweakerdemandduetolower

waferutilization.PerSiliconChina’slatestdata,priceforTypeN/ProdsiliconpolyandTypeNgranularpolyhasdeclinedtonewlowsatRmb40/34.3/36.5perkgasof

7/4/2024,respectively,-41%/-41%/-38%ytdand-76%/-86%/-89%versuslastpeaklevelinMay/Feb/Jan-23duetodataavailability.

WeseeoverallwaferpricefollowedasimilardownwardtrendandfellbelowTier-1cashcostlevelinthebeginningofQ2.Althoughdemandfrominstallationremainedrobustandcapacityclosuresareslowsofar.ThelatestdatafromSiliconChinashowsthatthe

M10TypeP/NsolarwaferdecreasedtoRmb1.23/1.12perPCasof7/4/2024,respectively,-36%/-49%ytdand-63%/-68%versuslastpeakinSep-23.

TheoverallcellpricefollowedthedownwardtrendandapproachedtheTier-1cashcostlevelinearlyQ2,drivenbyovercapacitytomeetthecurrentmarketdemandinthenearterm.ThelatestdatafromPVInfolinkshowsthepriceforPERC182mm/210mmand

TopconcellisRmb0.3/0.3/0.3perW,asof7/4/2024,respectively,-21%/-25%/-36%ytdand-60%/-59%/-63%versuslastpeakinSep-23.

ModulehadarelativelysmoothdownwardtrendbutalsofellbelowTier-1cashcostin

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thebeginningofthisQ2,duetooversupplyandlowerorderacceptancerate.ThelatestdatafromPVInfolinkshowsthatthepriceofPERC182mm/Topcon182mm/HJT210mmdecreasedtoRmb0.8/0.85/1.05perWasof7/4/2024,respectively,and-17%/-17%/-18%ytd,-51%/-51%/-43%versuslastpeakinJune2023.

Exhibit11:N-typepolypricehasdroppedbymorethan70%vs.

2023peak

Mono-polysiliconpricetrend

Exhibit12:N-typeM10waferpricehasdroppedbymorethan60%frompriorpeak

Waferpricetrend...

Source:PVInfolink,SiliconChina,DatacompiledbyGoldmanSachsGlobalInvestmentResearchSource:PVInfolink,SiliconChina,DatacompiledbyGoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChinaCleanTechnology:Solar

Exhibit13:...similarforTopconcell

TopconCellpricetrend

Exhibit14:...andTopconbifacialmodule

TopconBifacialModulepricetrend

Source:PVInfolink,SiliconChina,DatacompiledbyGoldmanSachsGlobalInvestmentResearchSource:PVInfolink,SiliconChina,DatacompiledbyGoldmanSachsGlobalInvestmentResearch

Exhibit15:Weestimateeffectivecapacityutilizationratetohitrecord-lowin2024ona40%-100%oversupplyacrossthemainvaluechainwithPolyhavingthehighestoversupply

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Source:CPIA,PVInfolink,SiliconChina,Oilchem,Wind,Companydata,GoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChinaCleanTechnology:Solar

Exhibit16:Weexpectsequentialcapexdeclinesintoupcomingquarters

OnlycapexestimatesaresourcedtoGoldmanSachsGlobalInvestmentResearch

Source:CPIA,PVInfolink,SiliconChina,Oilchem,Wind,Companydata,GoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChinaCleanTechnology:Solar

Exhibit17:Poly(mostsevereoversupply)andwafer(increasinglyintegrated)aretheleastfavorablelinksalongthemainvaluechain

S&Ddynamicandlandscapeforsolarcorevaluechain

Source:CPIA,PVInfolink,SiliconChina,Oilchem,Wind,Companydata,VisibleAlphaConsensusData,GoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChinaCleanTechnology:Solar

Exhibit18:Forotherpartofthesupplychain,wepreferinverter/glass/?lmvs.cellequipment

S&Ddynamicsandlandscapeforsolarinverter,PVmaterialsandcellequipment

Source:CPIA,PVInfolink,SiliconChina,Oilchem,Wind,Companydata,GoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChinaCleanTechnology:Solar

Notapolicy/demandshockthistime

Weviewthesolarsectorasacost-drivenindustrywithpositivegrowthopportunitiesover2026-30EonthebackofrisingcostcompetitivenessandlowpenetrationinChinaandglobally.Weexpectbothglobal(+11%)andChina(+14%)industrytogeneratelow-teeninstallationCAGRin2026E-30EwithChinasolarmodule

installations/Chinaplayers’addressablemoduledemandreaching241GW/519GWin2024E(+12%yoyforboth),amoderationafterasigni?cantincreaseof+147%/70%yoyin2023.Withinthebroaderindustry,weexpectutility-scalesolarinstallationin

Chinatodeclineby5%yoyin2024Eduetoconstraintsofpowergridcapacitywhile

distributedsolartogrowby32%yoyespeciallyledbynon-residemand(dueto

improvedLCOEamidmodulespricedeclinesandgovernment’spushtoreduceenergyconsumption),andthena13%/17%CAGRforutility-scale/distributedsolarinstallationover2024-30E,reaching239GW/330GWin2030E.Webelieveglobalinstallationtill

2030EwilllikelyseethebiggestcontributionfromChina,especiallyfromcommercial&industrialdemand,followedbyutility-scaleprojects(Exhibit19).Recently,adomestic

policyfromNEAonhigh-qualitydevelopmentofnewenergyloweredthecurtailmentthresholdforsolar/windpowergenerationwhichhasbeen95%since2018,buttherecentgovernmentdocumenton2024-2025NationalEnergySavingand

DecarbonizationActionPlanindicatesareaswithdecentprojectpro?tabilityandnaturalresourcescanenjoylowercurtailmentthreshold(andhencehigherceilingforadditionalsolarinstallation)at>90%.

OurUSanalyst(BrianLee)forecastsglobalsolarnewinstallationtogrowat13%

CAGRin2023-2030E.Inparticular,BrianexpectstoseeAmericasandrestoftheworld

toleadthegrowth,whileamixedpictureinEurope.IntheUS,IRApoliciesare

supportingthemid-to-longertermdemandbyextensionoftaxcreditsandInvestmentTaxCredit(ITC)adders.Fortherestoftheworld,MiddleEastisaimingtoreduceoil

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dependency;SouthAfricaisprovidingsolartaxincentivestodrivesolarinstallations.However,inEurope,somecountries(e.g.,.NetherlandsandItaly)alteredthepaceofrenewablesandPVadoptionasenergypricescamedowninEurope,whilepolicyinGermanystillremainsaccommodative.

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GoldmanSachsChinaCleanTechnology:Solar

Exhibit19:WeexpectChinasolarmoduleinstallations/addressablemoduledemandtoreach241GW/519GWin2024E,+12%yoy

Awalk-throughofourdemandforecastmodel

Addressabledemandsumsupdomesticdemandandoverseasdemand(Globalex-Chinademanddeductinglocalcapacity)Source:CPIA,IEA,Wind,Companydata,GoldmanSachsGlobalInvestmentResearch

WebelieveUSutility-scaleandChinautility-scalehavecomparableLCOE(levelizedcostofelectricity)asofend-2023,atc.USD30/MWh(basedonourestimates).However,USdistributedsolarstillhasthehighestLCOE,almost2-5timesthecostofdistributed

solarinChina,asontopofthepanelandinvertersCOGS,theinstallation,sales,

marketing,certi?cationcostsarerelativelyhighintheUS.Therefore,we?ndChina

distributedsolartoremainverycompetitive,andChinadistributedsolar(residentialandnon-residential)tocontributetomajorityoftheglob