“High Inventory” Overwhelms Inverters

High overseas inventories not only overwhelmed components, but also overwhelmed inverters.

GoodWe's third-quarter report tonight showed that Q3 net profit fell 31% year-on-year.

In addition, inverter export data in September hit a new low again.

The golden growth era of inverters has come to an end.

01

Inverter exports hit bottom in September

When talking about the internal competition in the photovoltaic industry, the first thing to mention is the components. The price competition among companies has driven the price down to less than 1 yuan/W. But the fact is that the internal competition of not only components but also inverters is even more beyond imagination, and it has spread from domestic to foreign countries.

According to the latest published data, it can be seen that the export of inverters is not optimistic. In September, the export of inverters was 4.65 billion yuan, a year-on-year decrease of 29% and a month-on-month decrease of 6%; the cumulative export from January to September was 57.43 billion yuan, a year-on-year increase of 46%.

From the inverter export trend in the second half of this year, it can be seen that the export volume and growth rate of the month continued to decline, and the export volume and growth rate in September are currently the lowest.

Why is the export of inverters, which have always been considered the best track in the photovoltaic industry, so tragic in the second half of this year? Similar to components, the biggest problem is the high inventory in Europe.

The problem of high inventory in Europe has become more and more serious this year, especially in the third quarter, because the surge in household storage demand due to the Russian-Ukrainian conflict last year is not sustainable. The European market has returned to normal this year, but domestic manufacturers are still frantically expanding production capacity. Under the background of oversupply, European inverter dealers have accumulated a large amount of inventory.

According to EESA's forecast, the European household energy storage market size will reach 9.57GWh in 2023, and 4.47GWh of inventory will be consumed in the second half of the year. It is expected that the inventory will take at least until the end of 2023 to clear.

However, some companies have recently given positive feedback, saying that the European inventory peak has passed. And because the inventory in the European market has always been high, dealers have realized the necessity of appropriate price cuts to reduce inventory. In addition, the end of November and December in Europe and the United States is a small consumption peak, which is also a good time to cut prices and ship goods, so September is likely to be the darkest moment for exports.

The author believes that regardless of whether the current European inventory peak has passed or not, the essence has not changed. The fact is that, at least until the end of this year, Europe is continuing to digest inventory, and the incremental demand for domestic inverter exports is decreasing.

Even if inverter exports hit bottom in September, it will be difficult for inverters to return to their heyday in 2022 throughout 2023 or even in 2024.

Compared with Europe, we should pay more attention to opportunities in emerging markets in the future. For example, some countries in Latin America, such as Peru, Argentina and Chile, have very good development in wind, solar and storage. Even the markets in the Middle East and West Asia have not yet fully developed, and they can all serve as subsequent supplies for Europe.

02

Europe's success and failure

Although high inventories in Europe have been a hot topic in the third quarter, in fact, inverters also had a small performance boom in the first half of this year.

In the first half of 2023, inverter companies continued the high light period of last year. The revenue and net profit growth rates of leading companies such as GoodWe, Sungrow Power Supply, Sineng Electric, and Deye Power at least doubled year-on-year.

GoodWe's revenue increased by 162% year-on-year, and its profit increased by 13 times; Sungrow's revenue increased by 416% year-on-year, and its profit increased by nearly 5 times; Sungrow's revenue increased by 133% year-on-year, and its profit increased by nearly 4 times, and so on.

After carefully comparing the export data, we finally found the reason why the inverter performance in the first half of the year was so strong:

From the export data, we can see that the first half of this year was the peak period for inverter exports. It can be said that exports continued the momentum of 2022H2, especially in March, when the monthly export value reached 7.99 billion, a year-on-year growth rate of 166.6%, a record high. Therefore, it is not surprising that the leading inverter companies have excellent performance.

However, the good times did not last long, and the performance of inverter companies in Q3 ushered in a big change. On the evening of October 27, GoodWe also announced its third-quarter report, in which the revenue from Q1 to Q3 of 2023 was 5.65 billion yuan, a year-on-year increase of 94%; the net profit attributable to the parent company was 893 million yuan, a year-on-year increase of 224%;

Among them, the revenue in Q3 2023 was 1.836 billion yuan, a year-on-year increase of 25% and a month-on-month decrease of 12%; the net profit attributable to the parent was 152 million yuan, a year-on-year decrease of 31%.

GoodWe's revenue and profit in Q3 declined year-on-year. The reason is very simple. The inventory level in the European household storage channel is still high, which has a great impact on the order demand of inverter companies.

Therefore, it can be seen from the performance that inverter companies "are both made and broken by Europe".

03

There is no industry that grows forever

There is no essential difference between inverters and other photovoltaic links, and the overall environment benefits from the explosive demand for global new energy after 2020.

Unlike components, silicon wafers, and batteries, inverters have always been considered the best track for photovoltaics. In addition to technical barriers, the core reason is the explosive demand caused by the Russia-Ukraine conflict. With the advantage of cost-effectiveness, my country's inverter companies have quickly occupied the European market share, and the higher gross profit margin overseas has naturally created a brilliant performance for inverters.

However, there is no forever growing industry. If an industry makes huge profits, it will inevitably attract a large number of people to participate. Subsequently, various forces will inevitably expand production and seize market share, which will lead to overcapacity, declining gross profit margins, and industry clearance.

This is true for components, and inverters are no exception, so some companies have shifted their exports from Europe to emerging markets in an attempt to optimize the competitive environment.

In short, inverter is still a good industry, but it is impossible to create surprises in the market forever.

However, with the end of the explosive demand in Europe, the main battlefield, and the market returning to normal, it will be difficult for inverter companies to replicate their past huge profits. Overcapacity and price wars are highly likely events. Similar to other links, the industry will accelerate its clearance next.