With the continuous development of an industry and the gradual maturity of its business model and the formation of large-scale production settlements, enterprises will gradually expand their operations through vertical integration to enhance their ability to control upstream materials and costs, and expand downstream exports, in order to amplify their advantages in the market. This is also true in the solar industry.
According to InfoLink, as of the end of 2023, about 60% of enterprises in the entire supply chain integrate at least two links, with vertical integration of cells and modules accounting for the largest proportion. However, the core knowledge required to cross, as well as the initial investment cost and operational difficulties, resulting in varying degrees of difficulty for upstream and downstream entry.
In the upstream silicon material and wafer process, the first challenges are high initial investment costs, stable and low-cost power sources, and a long expansion process. Meanwhile, the silicon material process is chemical in nature, with high production risk and high pollution, which exerts high entry barriers in both production and processing.
In the production process, leading silicon material enterprises such as TW Solar and Daqo and wafer manufacturers Longi and Zhonghuan all have high capability in quality control and cost control, as well as leading manufacturing capacity and scale. It is very difficult for new entrants to reach and surpass in the short term. In addition, the huge procurement contracts in silicon already signed by major wafer manufacturers in the coming years makes it harder to break new sales channel.
The current mainstream production process of PERC cells and conventional modules has undergone several years of market transformation, providing a relative simplified threshold to enter. However, new players may face difficulties in selecting technology and size when expanding production. With the rise of n-type technology, they also need to further assess R&D capability, mass production capabilities and breakthroughs in yield and conversion efficiency.
For modules, the focus of investment is on brand operation and sales channels, as well as the coverage of module products, customized products tailored to different markets, and after-sales and maintenance services.
Leading enterprises continue to lead technological changes in the industry, with many expanding their integrated business operations. However, over time, there have also been many cases of photovoltaic enterprise failure. During technological transformation, due to the expansion of vertical integration business scope, resources invested in a single link are relatively diluted, and the research and development capacity can be easily surpassed by other professional peers.
Meanwhile, the integration of enterprise layout will make it more difficult to maintain a solid leadership position in all aspects, and may even lead to many management issues. When assessing the market demand, in the face of the violent turbulence of terminal demand at home and abroad, unpredictable external factors may lead the company to the mismatch between the expanded capacity and the actual demand, resulting in the company’s operating losses and vertical unconformity.
In the mature stage of industrial development, in order to control the quality of upstream raw materials and establish downstream sales channels and regional market intelligence, solar enterprises will conduct more vertical integration. Major players who have already established themselves in their own links will consider span into other links to avoid future risks, while others will be focusing on R&D and innovation to enhance competitiveness, and stabilizing their industrial position with differentiated products.
