Solar Equipment Company LONGi Topper in Photovoltaics Business

 

The market value has gone from 100 billion to over 500 billion, in only 2 years, how does the "new king of photovoltaics" become?

Zhong Baoshen believes that LONGi has relied on full innovation, promoting industrial technological innovation, and reducing costs. "In the face of temptation, information asymmetry, and various difficulties, people tend to forget common sense. In fact, common sense protects your precious wealth."

Photovoltaic is an industry where it is easy to make the richest man, and there is never a shortage of stories. In the past ten years or so, during the ups and downs, Suntech Shi Zhengrong, Saiwei Peng Xiaofeng, Hanergy Li Hejun.

 

Refer Solar Power in India

 

 

This time, Longi became the new protagonist. This is also a journey full of stories and controversies, but this time, people hope to see a different ending.

 

On August 30, LONGi released the 2021 semi-annual report. In the first half of the year, the company achieved operating income of 35.098 billion yuan, a year-on-year increase of 74.26%; net profit attributable to shareholders of listed companies was 4.993 billion yuan, a year-on-year increase of 21.30%. 

On the same day, Longi's market value once again exceeded the 500 billion yuan mark, becoming the world's most valuable photovoltaic company. 

This is another rebound after the company climbed to the same peak in July this year and then began to decline. In contrast to other component companies increasing revenue but not profit, this report card of Longi is particularly eye-catching.

 

From the total market value exceeding 100 billion yuan on August 28, 2019, to breaking the 500 billion yuan mark twice on July 8 and August 30, 2021, Longi only took 2 years. In the eyes of the outside world, this is undoubtedly a rocket-like speed.

 

"I don't care, nor will I care about stock price fluctuations." Facing the rise and fall, LONGi's chairman Zhong Baoshen was very indifferent. In his office in the ancient city of Xi'an, he told "Chinese Entrepreneur" that Longji will focus on solving customer problems and focusing on improving business results. 

"In general, we will operate this company with the long-term corporate sustainability improvement as the standard and direction."

 

This is his 15th year since joining Longi. In the past 15 years, he has personally experienced the difficult growth of the photovoltaic industry from relying on government subsidies to independent survival, and witnessed the prosperity and collapse of several richest men. 

Since its leading monocrystalline silicon technology has completely surpassed polycrystalline silicon, Longi has also become a veritable new king of photovoltaics from an inconspicuous small company.

 

The front runner has never been easy. The negative impact of Suntech, 赛维, Hanergy and other missteps on the industry has not completely subsided. Longi is also facing challenges such as the risk of upstream raw material price hikes, downstream susceptibility to power central enterprises, and alliances with competitors. 

After leading the industry towards parity online, Longi also needs to face pressure on its own operational management capabilities.

 

With the introduction of the carbon peak and carbon neutral vision in more than 120 countries and regions around the world, renewable energy represented by photovoltaics is facing development opportunities. 

At the same time, the continuous breakthrough of new technologies, the continuous influx of cross-industry opponents, the upgrading of the "double reverse" in Europe and the United States, the impact of financial wealth creation, and the integration of hydrogen energy and building photovoltaics and other new businesses that have yet to mature cannot be ignored.

 

Has Longi found a way to deal with it? Can it maintain sustainable competitiveness and avoid the short-lived mistakes of the industry leader?

Zhong Baoshen said: "Common sense is particularly important, but it is so difficult to observe it and truly understand it." Source: Interviewee

 

Key decision

The name "Longji" comes from Changjiang Longji, a famous former school of Lanzhou University. An overseas phone call in September 2005 brought two Lan University students together.

 

After graduation, one was assigned to Shaanxi Huashan Semiconductor Material Factory and the other to a rare earth magnetic material factory in Fushun, Liaoning. Later, both of them started their own businesses. 

Zhong Baoshen founded Shenyang Longji dedicated to the research and development of magnetic materials in 1993, and Li Zhenguo founded Longji's predecessor Xi'an Xinmeng Electronic Technology Co., Ltd. in 2000.

 

Li Zhenguo, who is engaged in silicon materials, discovered the huge prospects of the photovoltaic industry and sought transformation. Affected by the fact that the company almost suffered fatal losses from the previous decision alone, I hope to introduce Zhong Baoshen, a think tank, to start a joint venture. Zhong Baoshen's company has performed well, but it has also encountered a ceiling. At that time, he had achieved financial freedom and was visiting the "Twin Towers" in Kuala Lumpur, Malaysia. After receiving the invitation of his classmates, he joined Xi'an Longi the following year.

 

 

 

 

It was also the first year of the rise of China's photovoltaic industry. Affected by the German feed-in tariff law in 2004, a large number of domestic companies, including 赛维, have entered this field. The combination of photovoltaic heat and the venture capital circle has opened up a wealth of myth. 

Soon, Suntech Power landed on the New York Stock Exchange, Shi Zhengrong became the richest man in China, and the photovoltaic industry created a number of listed companies in just two years.

 

When Zhong Baoshen came to Xi'an in 2006, the first problem he faced was the choice of technical route. Unlike most companies in the same industry who chose the polysilicon route, after market research and careful decision-making, the two resolutely chose the monocrystalline silicon route that was not optimistic at the time.

 

Single crystals are made on the basis of polycrystals through multiple purification and impurity removal processes. 

Because it has no grain boundaries, it is superior to polycrystalline in terms of crystal quality, electrical properties, and mechanical properties, and its conversion efficiency is higher. However, due to the cost, everyone chose polycrystalline.

 

Although single crystal is not favored, the two believe that its cost will definitely come down. Zhong Baoshen said, "We think that this industry either has no future. If it has a future, it must be single crystal. We believe that this industry has a future and are willing to give it a try."

 

Zhong Baoshen is not fully sure whether the single crystal can win, but he believes that if a few people encounter a tiger, there is no need to run the tiger, just need to run the fellow, and there is no danger. It was also at that time that the two set their company's goal to be the world's leading monocrystalline silicon wafer company.

 

"During the implementation process, especially when single crystals are under great pressure, there must be someone who does not understand that we can actually do polycrystalline, and the market for polycrystalline is better now." Zhong Baoshen said, "but the company's decision-making direction You can’t just see in front of you."

 

After determining the direction, you must dare to invest resources and manpower, and stick to it for a long time. 

During the rapid development of the industry, LONGi remained unmoved and concentrated on the research and development of monocrystalline silicon rods and wafers. 

Through continuous feeding, diamond wire cutting and PERC battery technology applications, it further improved power generation efficiency and reduced power generation costs.

 

In the cutting process of monocrystalline silicon rods, if the traditional process is followed, it is easy to cut thick, resulting in material waste. The diamond wire technology can use as little material as possible on the basis of ensuring the performance of the silicon wafer, which not only saves costs, but also improves the yield rate.

 

In 2011, Longi put the diamond wire technology on the agenda. "Chinese Entrepreneur" magazine once reported that in order to promote this technology, Zhong Baoshen had made the decision to bear a loss of 40 million yuan. However, the facts exceeded their expectations, and Longi lost only six months and the cost was reduced.

 

Longi has made a strategic layout and put forward the goal of becoming the world's leading solar technology company. 

In order to focus on the areas of monocrystalline and monocrystalline silicon wafers, they even divested the profitable but unrelated semiconductor business and silicon material cleaning business, and transferred back the shares of the joint venture silicon wafer factory to re-establish a silicon wafer company.

 

In 2013, Longi completed the first phase of its strategic goal and became the world's number one company in terms of monocrystalline silicon wafer shipments. According to the "China Photovoltaic Industry Development Roadmap" (2020 version) published by the China Photovoltaic Industry Association, the monocrystalline silicon wafer market accounts for about 90.2%, and the replacement of polycrystalline silicon has become the dominant technology route.

 

"Regardless of scale, profitability, or technical level, the performance of monocrystalline silicon wafers surpasses that of polycrystalline silicon." Zhong Baoshen said. However, when he and Li Zhenguo went to the cell factory to investigate, they found a new problem.

 Many downstream component companies have their own polysilicon factories and are unwilling to take the initiative to replace them, making it difficult to promote.

 

Under the dual effects of industry pressure and their own active choice, they decided to enter the component field and acquired Zhejiang Leye in 2014.

 

This important layout quickly achieved results. LONGi's component ranking has jumped from the eighth place in 2016 to the first place in 2020. 

In the latest semi-annual report of Longi, the proportion of component revenue in revenue has increased from 57% in the first half of 2020 to 67% in the first half of 2021. 

PVInfoLink, a market research organization, predicts that LONGi's module shipments in the first half of 2021 will continue to rank first in the industry.

 

Source: Visual China

 

In the history of Longji's development, similar key decisions have been made four times. 

1. Zhong Baoshen said that the first time was to choose the monocrystalline route.
2. The second time was to start focusing on monocrystalline and monocrystalline silicon wafers and resolutely divest other businesses.
3. The third time was to enter the cutting of silicon wafers.
4. The fourth time was to reposition the company and enter To the battery assembly link.

 

In 2020, Longi established the Strategic Research Institute. Zhong Baoshen introduced that it mainly provides some basic information and reference opinions for the company's senior management, or is instructed by the senior management to do certain aspects of research, similar to a corporate think tank. 

"When the company conducts strategic discussions, it will expand to the entire senior management level, and finally the investment decision-making committee will make the decision. The investment committee is composed of three people, I, President Li Zhenguo, and CFO Liu Xuewen."

 

Return to common sense

Some people say that Longi’s success is due to its strategy, some say it’s technology, others say that the government has handled it well, and others say that the joint decision of Li Zhenguo and Zhong Baoshen avoided many risks. Zhong Baoshen said that it is common sense to fully innovate, promote industrial technological innovation, and reduce costs.

 

"Common sense is particularly important, but it is so difficult to observe it and truly understand it." Zhong Baoshen said, "Because in the face of temptation, in the face of information asymmetry, and in the face of various difficulties, it is easy for people to forget common sense. In fact, common sense is. Protect your precious wealth."

 

The photovoltaic industry has always said that “silicon is the king”. Faced with the shortage of raw materials and the strong demand for modules, driven by the joint pursuit of the government and capital, companies often forget common sense and make wrong decisions.

 

In 2006, the price of polysilicon materials skyrocketed, and the retail price exceeded US$150/kg. In order to lock in the price, Suntech signed a ten-year long-term order with a fixed purchase price of US$80/kg. 

Unexpectedly, it was affected by the financial crisis and started in 2008. 

The price of polysilicon plummeted, and by the end of 2011, it was only US$35/kg, and Suntech had to pay US$212 million to terminate the contract.

 

After surpassing its silicon wafer production capacity, Servier also ventured into the field of silicon materials that it was not familiar with. According to a previous report by "Chinese Entrepreneur", Saiwei's polysilicon project was the world's largest at that time, with an investment of 12 billion yuan, most of which came from bank loans.

 

It is precisely that they were the first to be impacted when government subsidies ebb, capital draws, the financial crisis, and the reverse of Europe and the United States, causing the break of the capital chain and a series of problems that endanger the survival of enterprises. Many enterprises quickly disappeared like a free fall.

 

Some people attribute the reasons for the failure of enterprises to external factors such as the financial crisis and double reverses. 

However, Li Junfeng, the first director of the National Climate Change Strategy Research and International Cooperation Center and the director of the Academic Committee, does not think so.

"During the first round of double reverses in the United States, tariffs With a levy of 30% to 40%, Chinese companies still make money because of their scale and cost advantages."

 

Similar to the influence of Moore's law for communications semiconductors, photovoltaic semiconductors are affected by Swanson's law, that is, the price of monocrystalline silicon will rapidly decrease with scale production and application.

 

"Financial boosting made everyone ignore the influence of the law, and it also allowed this industry, which should be a technology-driven industry, to show the extensive characteristics of manufacturing in the early stage." Li Junfeng said, "After the brutal entry of capital, everyone will make mistakes. And companies that make fewer mistakes survive."

 

Longi is relatively stable. When the price increase of polysilicon caused the industry to burn up, many photovoltaic companies signed long-term orders with overseas polysilicon manufacturers, and Longi restrained their desires and has been purchasing in accordance with the spot market.

 

When the government subsidies went down, Longi soberly assessed the market. Zhong Baoshen said that photovoltaic cost and scale are related. In the early stage, this was an industry that relied on government subsidies. 

If the market capacity is exceeded, it is necessary to think that any government’s finances are under pressure and it is difficult to continue to support the development of the industry, so the scale of the industry is limited. 

Only when the economy of the product itself is sufficient, the scale of the industry will continue to expand.

 

Both Zhong Baoshen and Li Junfeng believe that photovoltaics are an industry full of resilience. From the beginning of 2002 to the present, the global market demand of the photovoltaic industry has been showing a positive growth trend, and there has been no negative growth even in the face of the financial crisis. 

"If just because of changes in policies or changes in prices will lead to a company's bankruptcy, it can only show that the previous leading companies are too fragile." Zhong Baoshen said.

 

 

The front runners continue to fall because of their inadequate pursuit of short-term opportunities and insufficient external environmental risk assessment. Zhong Baoshen told the "Chinese Entrepreneur": "Enterprises should fully evaluate this risk, manage and control this risk, and look at the problem from the perspective of long-term sustainable development, instead of blindly expanding debt after seeing development opportunities, and doing everything possible to grab the so-called chance."

 

During the development process, LONGi formed a sixteen-character policy of "product leadership, efficient operation, practical cooperation, and stable operation". That is, through technological innovation, let products form advantages in serving customers; through efficient operation of the organization, improve resource utilization efficiency. Seek truth from facts, not whitewash data, control leverage. Do a good job in risk control and financial balance.

 

Longi's debt ratio has never exceeded 60%. Zhong Baoshen said that in 2008, he asked to set a red line: the asset-liability ratio is controlled within a certain limit, and investment cannot be financed because it cannot be quickly turned over. This is to ensure that all projects are invested in one's own money, and there is no need to borrow money. "Of course, as the company got bigger and bigger, we began to do all-round and comprehensive financial control and risk control."

 

This is also the development path recognized by Li Junfeng. Now that the industry is becoming hot again, he wants to remind entrepreneurs not to forget the law: "Finance can make you succeed, or it can make you fail, but money will not change the true nature of people or companies. If wisdom and work style remain unchanged, the value will increase. Ten times, a hundred times, you are still you, and you must not expand."

 

Face the challenge

Although it has been on the throne of the photovoltaic industry, Longi has been subject to constant controversy, including technical routes and wafer sizes. Especially from the perspective of competitors in the industry, they may face more intense doubts and challenges because of their leading position.

 

Before the Shanghai SNEC exhibition this year, Longi suddenly announced that the conversion efficiency of its N-type and P-type Topcon batteries and heterojunction batteries set three world records at the same time, which aroused great attention from the industry.

 

"When the technology is hot and it is very advanced, everyone finds that Longi will be able to put into production soon. In fact, Longi may have been researching three or four years ago, and some places have already made good progress." 

Zhong Baoshen said, Longi will first Discuss whether a technical route has value, where are the restrictive factors, whether it can be mass-produced, and what key equipment is needed, then select promising ones and invest a lot, and at the same time improve the technology and equipment. "In fact, it is not done in a day, it is also a long process."

 

In the past, the main keynote of the industry was to reduce costs and make the market affordable. After going online at a fair price, the cost reduction space of solar cells in the entire life cycle of photovoltaics will be reduced, and the value will be transferred.

 

Refer China Carbon Credit