The photovoltaic industry has witnessed a tumultuous period characterized by the withdrawal of numerous companies dabbling in solar energyAs we approach the end of 2023, a stark reality has surfaced for many businesses that ventured into this realm, revealing the harsh consequences of an increasingly competitive and unsustainable market.

On December 17, 2023, the stock price of Madi Technology (603990.SH), a company primarily known for its healthcare services, faced a drastic plunge, closing at 12.40 yuan per share and marking a valuation drop to 3.8 billion yuanWhat led to such a downfall? Only a year prior, the company had announced its ambitious leap into solar photovoltaics, a sector where it failed to gain profitable traction, and subsequently opted to shed its loss-making photovoltaic business.

This shift occurred in late October when Madi disclosed it would divest its unprofitable solar cell manufacturing segment

Initially, the market responded favorably, with shares rising nearly 30% between the announcement of the revised asset divestiture and early DecemberHowever, the wider trend in the solar energy landscape reveals that Madi is not alone in its struggles — many enterprises stepping outside their traditional domains to capitalize on the solar boom have felt the recent chill of the marketplace.

It’s noteworthy that, according to statistics collated by journalists from the 21st Century Business Herald, various companies like Mubang Gaoke (603398.SH), Huangshi Group (002329.SZ), and Mingpai Jewelry (002574.SZ) have faced numerous challenges this year, including losses, project cancellations, or outright exit from the sectorA solar energy analyst commented on this phenomenon, highlighting that the exits of these crossover companies mark a significant shift in the photovoltaic industry as it undergoes a crucial maturation phase, emphasizing the harsh realities that often accompany entry into such a competitive field.

Madi's retreat coincided with financial gains and backing from local state-owned enterprises, which were expected to bolster their ventures into solar energy

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Following its announcement of foraying into the photovoltaic scene in January 2023, Madi swiftly attracted interest from research institutionsTheir strategic plans were laid out prominently during a targeted investor event in February, where they detailed their technological frameworks and ambitious hiring goals — a commitment to employ approximately 1500 individuals for this initiativeThe company expressed confidence in their anticipated product yield, asserting that their first phase of production would achieve a 98% quality rate.

However, while local governments have played a pivotal role in promoting solar energy, the case of Madi shows the difficulties that arise with such strategies, particularly in regions like Mianyang, where the pace of development has been relatively slow compared to other localities bustling with solar enterprisesDespite being identified as Mianyang's largest solar manufacturer, Xinhao New Energy has succumbed to significant financial losses

Reports revealed that Xinhao incurred losses of 289 million yuan in 2023 and 79 million yuan in the first half of 2024, becoming a considerable financial burden for Madi's photovoltaic division.

In stark contrast, Madi Electric Technology (Suzhou) managed to turn in minor profits during the same timeframe, showcasing the variability in success among investments in solar entitiesHowever, the overall financial outlook for both Xinhao and Madi Electric gave a rather sobering picture — between January and August of this year, the two companies reported a sizeable net loss attributed to their solar investments.

As Madi shuffled its photovoltaic assets, settling on state-run investment firms as new owners, it became clear that the company intended to refocus its efforts on its healthcare servicesThe transaction, involving the sale of a 100% stake in Xinhao New Energy to Anjian Investment Company, further exemplified the trend of state assets absorbing companies that could not withstand the rigorous demands of the solar landscape.

Reflecting on the backdrop of these developments, 2022 and 2023 marked critical years for the surge of various industries entering the solar market

Many of these “cross-border” companies proudly touted state investments as they expandedHowever, misalignments in supply and demand rapidly pushed a once-booming industry into fierce competition, magnifying price declines and leading to widespread losses across manufacturing sectorsWith the larger, established solar enterprises dominating in both capabilities and technological innovations, newer entrants soon realized the added pressures posed by irrational market conditions.

For instance, on November 5, 2023, Zhengye Technology announced its decision to dispel plans for a colossal investment in a photovoltaic facility valued at approximately 5 billion yuanThis announcement was met with incredulity, as the projects set to boost the company’s operational capacity were now terminated amid poor financial performance, reporting losses of 221 million yuan in 2023 and already 114 million yuan in just three quarters of the ongoing year.

Such patterns continue to emerge within the industry

Just as Zhengye opted to divest its stakes in its solar subsidiaries, mirroring Madi’s earlier decisions, the cycle of crossing into solar energy has revealed a ruthlessly unforgiving landscape where naive pursuits have associated substantially with lossesLike many others, Mingpai Jewelry also sold off its solar venture to alleviate pressure from losses garnered in recent quarters.

The story of ST Lingda has further deepened the narrative of failure in this sector, as the company faces bankruptcy restructuring with stakeholders attempting to salvage investments while navigating challenges on the legal frontDespite the ongoing turmoil, there remains an expectation for capacity clearance, albeit with painful ramifications that may entail further bloodshed and rejections from the burgeoning market.

The enormity of complications facing transitioning enterprises signifies the necessity for stringent self-regulation within the industry, as calls arise for enhanced technical and quality standards to uplift the sector’s health