Solar Sector Faces Deepening Slump as Price War Decimates Profits
A profit warning from a global manufacturing giant signals persistent pain for the industry, even as Beijing begins to tackle the overcapacity that fueled the crisis.
The global solar energy sector was dealt a fresh blow this week as LONGi Green Energy Technology, one of the world's largest solar manufacturers, signaled it expects another full-year loss. The announcement from the industry bellwether confirms a painful and persistent truth: a massive glut of manufacturing capacity, primarily in China, has triggered a devastating price war that continues to erode profitability for companies worldwide.
The solar industry's current woes stem from a period of hyper-expansion by Chinese producers, which created a structural oversupply. Chinese solar module production capacity more than doubled expected global demand, leading to what analysts have termed “irrational” competition. As a result, the price for solar modules plummeted by more than 40% in the past year, wiping out margins and stalling projects that were banking on higher returns.
This fierce international competition has put immense pressure on U.S. and European solar companies. The impact is visible in the divergent fortunes of major U.S.-listed players. Shares of residential solar technology providers like Enphase Energy (NASDAQ: ENPH) and SolarEdge Technologies (NASDAQ: SEDG) have been hit hard. Enphase has seen its stock fall to around $35, while SolarEdge, which posted a negative EPS of -$9.63, is trading near $34. The majority of Wall Street analysts have a 'Hold' rating on both stocks, reflecting deep uncertainty about their path forward in the current environment.
In contrast, First Solar (NASDAQ: FSLR), trading around $244, has shown more resilience. The company's unique thin-film technology and significant U.S. manufacturing footprint have made it a primary beneficiary of domestic content incentives within the Inflation Reduction Act, partially shielding it from the flood of cheap Asian imports. While its peers struggle, First Solar has maintained strong analyst support and a positive earnings outlook.
However, the dynamics that created the crisis may be starting to shift. In a significant policy reversal, Beijing has begun to take action to rein in its runaway solar manufacturing sector. Recent reports indicate that the Chinese government is implementing stricter licensing requirements and has slashed export tax rebates for solar panel producers, according to reports. This policy intervention is already having an effect, with module prices beginning to stabilize and some analysts forecasting potential price increases of up to 30% through 2026.
While an end to the price freefall would be welcome news for producers' bottom lines, it presents a double-edged sword for the broader industry. Project developers and installers who have grown accustomed to ever-falling hardware costs will face margin pressure of their own. For a sector already grappling with higher interest rates and challenging project economics, the end of cheap panels may signal that the path to recovery will be a bumpy one.