Tongwei is making a fortune selling high-purity silicon for solar panels

Headquartered in Chengdu, Sichuan Province, Tongwei Group 通威集团 is involved in the entire production process for solar energy and in livestock feed, which uses some of the same processes and materials. Yesterday, the company announced that as of the end of the second quarter, its cumulative global shipments of solar photovoltaic cells exceeded 100 GW, making Tongwei the first company in the world to achieve this distinction.

Tongwei first entered the industry for high-purity crystalline silicon, the most common solar cells used in solar panels, in 2013 and is now the world’s largest producer. The company claims an annual production capacity of:

• A total of 180,000 tons of high-purity silicon, which the company expects to increase to 350,000 tons per year in 2023, and to as much as a million tons in 2026;
• In excess of 50 GW of solar cells, which the company expects to increase to 100 GW by 2023; and
• In excess of 10 million tons of aquafeed and livestock and poultry feed production.

Tongwei describes itself as a vertically integrated photovoltaic enterprise with upstream high-purity silicon production, mid-stream solar cell production, and downstream photovoltaic power station construction and operation. Yet it’s the upstream component of Tongwei’s business — the high-purity silicon — that has transformed the company into what local media reports describe as a “veritable money-printing machine.”

• In the first half of the year, China’s domestic production of high-purity silicon was about 341,000 tons, and along with imports accounted for a total domestic supply of about 382,000 tons, which presents a supply shortage of more than 20,000 tons.
• As a result, the price of high-purity silicon has continued to increase steadily from the beginning of the year, and has just surpassed 300,000 yuan ($44,471) per ton, a record high.

For Tongwei, the higher the price of silicon, the higher the profits, and right now, it’s raking in astronomical amounts:

• For the first half of the year, the company expects net profits of up to 12.5 billion yuan ($1.85 billion), a year-on-year increase of up to 321.48%. This amount would already well exceed Tongwei’s net profits for the whole of 2021 of 8.20 billion yuan ($1.21 billion).
• If Tongwei fulfills the upper limit of its profit forecast, it would represent an average net profit of 69 million yuan ($10.22 million) per day for the whole first half of the year.
• In early July, Tongwei’s market capitalization exceeded 300 billion yuan ($44.47 billion), following 70 days during which the company’s stock price increased by nearly 70%.

The biggest challenge now for Tongwei is to keep up with demand, and to fulfill the massive contracts it has just signed:

• Since the start of this year, Tongwei has signed five major high-purity silicon sales contracts worth a total of 254 billion yuan ($37.65 billion), which far outstrips the company’s entire reported revenue in 2021 of 63.49 billion yuan ($9.41 billion).

The context

In 2018, when government subsidies for the photovoltaic industry were discontinued, the industry went into a decline and the price of high-purity silicon dropped sharply. Various producers ceased or lowered production, and terminated expansion plans. Tongwei, however, continued to expand production, adding two new high-purity silicon projects in 2018, with several more in the years since.

Over the course of 2021, the price of high-purity silicon increased from 80,000 yuan ($11,859) to 210,000 yuan ($29,647) per ton, and as the price continued to increase in 2022, Tongwei is the largest producer of this “black gold,” with a dominant negotiating position for sales contracts.

The outlook for the company’s profitability is highly positive:

• On July 7, the National Energy Administration called for the acceleration of the construction of major renewable energy projects such as hydropower, pumped storage, and large-scale photovoltaic bases.
• According to the National Energy Administration, from January to May this year, China’s newly installed photovoltaic power generation capacity reached 23.7 GW, a year-on-year increase of 139%. According to a local report, over the same period, China’s exports of solar panels reached 63.4 GW, a year-on-year increase of 102%.
• According to the China Photovoltaic Industry Association, by 2025, newly installed global photovoltaic capacity will reach 330 GW, with a corresponding demand for about 1.11 million tons of high-purity silicon.

The takeaway

Tongwei is making 10 million dollars in clean profits per day feeding China’s photovoltaic industry with high-purity silicon.