Wu Bofan: Chinese PV companies should not forget the painful price

The past 2012 was a winter in China's photovoltaic industry. The debt of China's largest ten photovoltaic companies totaled 111.3 billion yuan, and the entire industry is on the verge of bankruptcy.

Suntech has been regarded as the leading company in China's photovoltaic industry and is the local business card of Wuxi. Now that it has fallen into the trap of domestic and diplomatic difficulties, we naturally think that Suntech suffered such a major failure and there must be some profound lessons. However, we were even disappointed when we carefully traced the reasons for the failure of Sundstrand. Although the consequences of Suntech's mistakes are quite serious, they are mistakes that can be seen by some fairly basic, common-sense people. And it is not the Suntech family that made such mistakes. China's large-scale photovoltaic companies that are in the same trouble as Suntech are now suffering from the same problems as the L.V. and Tianhe Solar.

As we have seen in the history of commerce, many decisions and execution errors that lead to catastrophic consequences appear to be rather low-level mistakes. Those who committed deadly mistakes are high IQ individuals. The mistakes committed by ordinary people are precisely because they are too clever and clever enough to despise common sense and ignore obvious facts.

The common sense is that having common sense does not guarantee your success. This may be an important reason why smart people despise common sense. However, once you ignore it, you may fall into failure, and it is often a major failure. Any person with common sense in the industry knows that this is a highly risky industry if he understands the photovoltaic industry. Some people say that he is an industry with two industries out there. The market and core technologies are out there. There is no industry with domestic demand and independent intellectual property rights. In fact, it should be said that he (photovoltaic industry) is a three-headed enterprise, not only the market and core technologies, including key equipment on the outside, but the core raw materials are also outside such an industry.

Without the core technology, this so-called high-tech industry is actually a kind of processing industry for Chinese companies. Some local governments and financial institutions regard it as a high-tech industry and a strategic emerging industry to support it. In fact, it It is an industry with a very low barrier to entry. Because of the low barriers to entry, photovoltaic companies have blossomed all over the country and soon formed a situation of low levels of excessive competition. The price war of mutual slaughter is unavoidable.

If you regain ordinary manufacturing, Chinese companies can also take full advantage of the low prices of local Chinese raw materials, but the core raw materials of the photovoltaic industry can only come from imports. We do not have pricing power in the price of raw materials, if the price of products declines. The profit margin will be greatly reduced, until zero profit or even loss sales, which is a huge risk for enterprises. The biggest risk is that the market for photovoltaic products is a market without domestic demand support. When China's PV production is in an initial climate, 99% of China's PV products are sold to the European market. Buyers have a natural initiative in this transaction. Right, there is no pricing right on our products. From the outset, China's PV companies are in a position of being overwhelmed, but it is not so obvious at the beginning of this situation.

With the introduction of photovoltaic companies, especially companies such as Suntech have expanded their production capacity at an irrational rate in order to obtain scale advantages. Under such circumstances, the buyer has given substantial price reductions and expanded production capacity has become ineffective. Capacity. All this is not an accident. It does not require profound knowledge and wisdom to foresee this pattern. It only requires investment and business knowledge. It is a huge temptation for Chinese PV companies to forget all this common sense. The painful outcome is just that. Forget a common ending of common sense.