Intensive efforts to rectify "involution-style" competition are pushing the industry to shift from "competing on price" to "competing on quality." Can cost accounting standards and price compliance guidance rescue the overcapacity-plagued polysilicon supply chain?
On July 27, the Photovoltaic Industry Association released a group standard for cost accounting in the photovoltaic sector. Shortly after, on July 31, the State Administration for Market Regulation initiated price compliance guidance for the photovoltaic industry, using methods such as reminders, compliance talks, and administrative guidance to steer photovoltaic companies toward standardizing price competition. These two signals primarily targeted "polysilicon," leading to a full limit-up for polysilicon futures contracts on August 3. Concurrently, A-share Tongwei Co., Ltd. hit the daily limit-up, while STAR Market-listed Daqo New Energy and Hong Kong-listed XINTE ENERGY (01799) both saw gains exceeding 8%. Downstream companies like JA Solar, Longi Green Energy, and TCL Zhonghuan also rose. However, this was a one-day pulse reaction, with both stocks and futures declining over the following three trading days.
Notably, on August 6, eight major domestic polysilicon companies, including Tongwei, GCL Technology, Daqo New Energy, and XINTE ENERGY, jointly signed an anti-involution "Initiative" in Shanghai, committing that no photovoltaic product sales price would fall below the corresponding cost calculated according to the group standard "General Rules for Photovoltaic Industry Cost Accounting Model." This news further stimulated gains in polysilicon and related sectors, with XINTE ENERGY at one point surging over 15% the next day. So, has this policy expectation brought a turning point for industry fundamentals, or is it another instance of "the wolf is coming"?
Policies Intensify Price Game in the Supply Chain
In reality, the polysilicon supply chain constitutes the upstream segment of the photovoltaic industry chain, which has received epic policy support, providing long-term development guarantees for the industry. Multiple heavyweight policy documents released recently, including the "15th Five-Year Plan" Carbon Peak Action Plan, the "15th Five-Year Plan" for Renewable Energy Development, and the Energy Sector Energy Saving and Carbon Reduction Action Plan (2026-2028), could reshape the upstream supply chain from the demand side. The "15th Five-Year Plan" for Renewable Energy Development targets a total installed capacity of renewable energy power generation of about 3,500 GW by 2030, with annual power generation reaching around 6 trillion kWh. Wind and solar power generation should total over 2,800 GW, generating more than 4 trillion kWh annually, accounting for 30% of total power generation. The "15th Five-Year Plan" Carbon Peak Action Plan aims to reduce carbon dioxide emissions per unit of GDP by 17% from 2025 levels by 2030, increase non-fossil energy consumption to 25%, and ensure the carbon peak target is met on schedule. In 2025, the combined installed capacity of wind and solar power reached 1,840 GW, accounting for 22% of power generation, indicating upside potential of 52.2% and 36.4%, respectively, compared to the policy targets.
However, it is important to note that photovoltaic cumulative installed capacity accounts for 30% of total power generation, and the industry faces two major issues: first, a sharp decline in new installations, with new photovoltaic installations dropping 66% in the first half of 2026; second, severe overcapacity on the supply side. Upstream, the annual polysilicon capacity exceeds 3.5 million tons, with Tongwei, GCL, Daqo, XINTE ENERGY, and Dongfang Hope collectively accounting for over 60%, yet capacity utilization is below 50%. Additionally, industry inventory continues to accumulate; despite low operating rates, demand cannot keep pace with production speed. The lower power costs during the wet season in the Southwest further stimulate regional capacity deployment. In August, three silicon plants planned to reduce loads for maintenance, while three others planned to increase production. Overcapacity, high inventory, and declining new installations have pushed polysilicon prices to continuously probe new lows.
The industry initiative advocates selling at prices not below the cost of production. The cash cost for the polysilicon industry is between 40,000 and 50,000 yuan, with the gap between cash cost and full cost close to 10,000 yuan per ton. Spot prices remain well below 40,000 yuan, meaning the industry is generally in a loss-making state. If polysilicon prices are raised above 40,000 yuan, batteries and modules will also adjust accordingly, raising questions about end-user acceptance and the impact of price increases on sales volume. In reality, the price game between upstream and downstream has just begun. Under policy guidance, the supply chain may no longer be a market-driven "prisoner's dilemma." The downstream end is driven by policy, and local governments are actively responding by setting photovoltaic installation targets, suggesting new installations could resume growth in the second half of the year. Upstream price competition will accelerate the elimination of outdated capacity, leading to divergent sales performances, with companies possessing technological advantages potentially gaining greater market share.
The Polysilicon Supply Chain: Years of Massive Losses
Policy-driven certainty provides growth expectations for the photovoltaic supply chain over the next five years. However, the current polysilicon supply chain, from upstream silicon materials and polysilicon to downstream cells and modules, sees industry participants suffering continuous losses. High inventory coexists with weak demand, and low-price involution traps the industry in a vicious cycle of "the more you sell, the more you lose," with the first half of 2026 ending in huge losses for all. Multiple companies in the supply chain have disclosed interim forecasts, generally expecting losses of 3 to 5 billion yuan. In terms of net profit attributable to shareholders, four companies—Tongwei, TCL Zhonghuan, Longi Green Energy, and JA Solar—are collectively expected to lose between 13.6 billion and 15.4 billion yuan. Polysilicon leader Tongwei is forecast to lose 4.8 billion to 5.4 billion yuan, while cell and module leader Longi Green Energy is forecast to lose 3.4 billion to 3.8 billion yuan. Over the past two years, these four companies have accumulated total losses exceeding 28 billion yuan.
With years of losses, cash flow cannot be replenished through operations, and industry debt ratios keep climbing. Facing massive debts, some companies continue to lower prices to sell in an attempt to generate cash to repay debts, which further intensifies involution competition and losses. As of March 2026, cash equivalents held by Tongwei, Daqo, TCL Zhonghuan, Longi Green Energy, and JA Solar were 17.475 billion yuan, 1.825 billion yuan, 7.814 billion yuan, 52.622 billion yuan, and 23.306 billion yuan, respectively. Tongwei, the upstream leader with high-purity polysilicon capacity of about 900,000 tons, far surpasses its peers. Its polysilicon market share has been the world's largest for several consecutive years, with 2025 high-purity polysilicon sales reaching 384,800 tons, accounting for 30% of the domestic market. Additionally, the company is a downstream leader, with solar cell shipments ranking first globally for nine consecutive years, achieving 103.03 GW of cell sales in 2025, representing about 15% of the global market. However, the company's rapid historical expansion has led to financial concerns. As of March 2026, the company had total assets of 186.99 billion yuan but total liabilities of 138.8 billion yuan, with interest-bearing debt (loans and bonds) of 72.272 billion yuan. The asset-liability ratio and interest-bearing debt ratio were 74.23% and 38.65%, respectively, with a cash-to-interest-bearing debt ratio of only 0.24. Combined with persistent losses and net cash outflows from operations, covering the debt gap is difficult.
In contrast, some peers have adopted a strategy of "rest and recuperation." For example, Daqo sold very little, with Q1 revenue declining by 79.22% this year. However, the company has a very low debt ratio, no interest-bearing debt, total liabilities of only 3.055 billion yuan, and an asset-liability ratio of just 7.4%. Amid price involution and the prisoner's dilemma, companies with low debt ratios have little to fear, while those with large debt gaps, under massive losses, push prices lower and lower. Surviving is the primary task. XINTE ENERGY, the Hong Kong-listed polysilicon leader with 300,000 tons of capacity, ranks fourth in the industry. Its biggest difference from Tongwei is extending the polysilicon supply chain to the downstream demand chain, laying out wind and solar power station construction and operation, with a relatively balanced revenue distribution. In 2025, polysilicon revenue fell to 19.17% of total revenue, making its performance less sensitive to polysilicon price fluctuations. As such, it may be a major player in hedging, accounting for over 40% of polysilicon warehouse receipts at the Guangzhou Futures Exchange.
The industry's predicament stems from disorderly market competition. Any company's decisions, including those of Tongwei and XINTE ENERGY, are driven by shareholder interests. However, the "invisible hand" of policy intervention is expected to help the industry return to the right track. Referencing the development trajectory of the lithium carbonate industry last year, which went from massive losses to turning a profit, reallocating industry profit margins requires consensus. If polysilicon companies implement cost-based pricing, it could drive the industry toward healthy development.
Policy-Driven Valuation May Turn a Corner
The industry initiative adopts the "General Rules for Photovoltaic Industry Cost Accounting Model," aiming to guide reasonable pricing by unifying the cost calculation scope, coefficients, and models across the entire "silicon material - wafer - cell - module" supply chain. According to calculations by CITIC Futures, as of the end of July, the full-cost profit margins for silicon material/wafer/cell/module were approximately -49.98%, -73.45%, -16.27%, and 0.18%, respectively. It is evident that the downstream module segment still has some profit. Profit reallocation will primarily occur upstream, where there is greater pricing space, while the downstream adjustment area is smaller, minimizing significant rejection from the end-user supply chain. The downstream supply chain aligns with national policy direction and is a core strategy for achieving the "dual carbon" goals, spanning development prospects for the next 5 to even 30 years. Profit reallocation could help address pain points across the supply chain, promoting high-quality energy transition.
In the capital market, the polysilicon supply chain is expected to see a valuation reversal. On one hand, industry valuations have hit rock bottom. Since 2022, stocks including Tongwei, XINTE ENERGY, Daqo, Longi, and TCL Zhonghuan have seen continuous market cap declines. Only a partial rebound occurred in 2025 for some stocks, and currently, most have shrunk by over 80% from their highs. On the other hand, policy-guided pricing is expected to accelerate the clearing of overcapacity, significantly improving industry fundamentals. Major investment banks have begun to focus intensively on sector stocks. Guoyuan International is bullish on XINTE ENERGY, believing its main businesses cover high-purity polysilicon, new energy power station construction and operation, and electrical equipment manufacturing. Its solid position in the polysilicon first tier, along with the ability of power station construction and operation and electrical equipment businesses to hedge against some silicon material cycle fluctuations, puts it on a path to valuation recovery. Pacific Securities is bullish on Longi Green Energy, viewing the company as a photovoltaic integrated leader, driving industry technological iteration, and benefiting from the implementation of the light-storage synergy strategy, maintaining a "buy" rating.
In summary, this time the policy is "serious." Policy guidance for the end-user supply chain sets long-term goals for energy transition. Cost-based pricing and profit reallocation in the upstream supply chain will reshape the industry landscape, accelerate capacity clearing, and guide the shift from "competing on price" to "competing on quality." While the polysilicon supply chain suffered massive losses in the first half of 2026, price increases in the second half could improve profitability, potentially creating investment opportunities from valuation recovery.
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