Sungrow Inverter Surpasses Longi Green Energy to Become the Leading Player in the PV Industry
On March 22, 2024, Sungrow Inverter achieved a market capitalization of approximately $215.5 million (CNY 152.9 billion), overtaking Longi Green Energy to claim the top position in the photovoltaic (PV) sector, thereby replacing Longi as the industry’s benchmark. The growth logic in the inverter market has been validated once again.
Historically, the global PV inverter landscape has been dominated by Huawei, which held the top position in shipments for six consecutive years from 2015 to 2020. However, in 2021, Sungrow Inverter surpassed Huawei to become the leader, subsequently stabilizing its market share at over 20%, reaching 125.4 GWh in shipments in 2023.
In fact, the inverter segment is the best-performing area within the PV industry. This is understandable, as both PV and wind energy systems, along with energy storage, require inverters, thereby significantly expanding downstream applications. Moreover, compared to Longi and others, which have been reporting substantial losses, inverter companies have shown far better performance in their interim reports. In the first half of 2024, Sungrow Inverter recorded a profit of approximately $7.1 billion (CNY 49.6 billion), while other players like Deye also posted profits exceeding $1.4 billion (CNY 10 billion).
While some companies like GoodWe are still facing minor losses, most others reported a notable recovery in their second-quarter performance, positively impacting their interim financial results.
Different Types of Inverters
It’s worth mentioning that there are various types of inverters, including centralized inverters, string inverters, and microinverters. Companies have different specializations—Sungrow Inverter primarily focuses on centralized inverters, while others like Deye and hoymiles specialize in small-scale inverters. Ultimately, Sungrow Inverter stands out as the largest and most robust player.
Sungrow’s business scope is extensive; in addition to PV and storage inverters, it also includes wind power converters and ground power station construction. In 2023, solar storage inverters represented the largest revenue source for the company, accounting for $5.4 billion (CNY 38.27 billion) of total revenue. The maximum efficiency of Sungrow’s inverters can reach 99%, with production costs ranging from $0.01/W to $0.02/W. Thanks to its technological advantages, in July 2024, Sungrow secured the world’s largest storage project in Saudi Arabia, worth $1.1 billion (CNY 7.8 billion).
Strong Profitability Metrics
In terms of profitability, Sungrow Inverter’s return on equity (ROE) was an impressive 20.94% in 2022, climbing to 40.71% in 2023—surpassing even premium brands like Kweichow Moutai, which had an ROE of 36.18%. This robust profitability is significantly higher than that of established companies like Tongrentang, Pizaihuang, and Bull Group.
Moreover, both the gross margin and net margin have been on the rise. From 2021 to 2023, Sungrow’s gross margin increased from 22.25% to 30.36%, while net margin nearly doubled from 7.06% to 13.30%, reaching 16.27% in the first half of 2024.
Potential Risks Amidst Prosperity
However, amid this prosperity, there are underlying concerns. In its 2024 interim report, Sungrow’s revenue and net profit increased by 8.38% and 13.89% respectively. While this is generally positive news, a closer analysis of the revenue structure reveals a decline in overseas revenue.
In the first half of 2023, Sungrow generated approximately $22 billion (CNY 154.28 billion) from overseas markets, accounting for 53.90% of total revenue. In contrast, in the first half of 2024, overseas revenue fell to approximately $19.2 billion (CNY 134.76 billion), with its share dropping to 43.44%. This decline warrants attention, especially since much of the optimism surrounding Sungrow stems from its strong overseas performance.
As the domestic PV market transitions to a phase of competing for existing demand, expanding internationally is crucial. Additionally, overseas profit margins significantly exceed domestic ones. If Sungrow fails to maintain its overseas market presence, it could face dual setbacks in both revenue and profitability.
Underestimated International Advantages?
Sungrow’s international advantages might have been overestimated, particularly in the critical European market. Europe is a vital battleground for inverters, with an anticipated 72 GW of new PV installations and 10 GW of new energy storage capacity in 2024. While Sungrow has focused on Latin America and the Asia-Pacific, Huawei remains the dominant player in Europe.
The sluggish performance in Europe could restrict Sungrow’s ability to expand its international business effectively.
Challenges with Distribution Channels
Moreover, the number of distributors for Sungrow’s products is not particularly large. In the case of household inverters, connecting with end consumers requires strong channel networks. Competitors like Tesla, BYD, and Huawei have better-established channels and market presence. Despite Sungrow’s minor advantages in the Asia-Pacific region, it has not been able to outperform Huawei in North America, even after Huawei ceded some market share.
Financial Observations
A review of Sungrow’s financial statements reveals concerns regarding accounts receivable. Accounts receivable have risen sharply, from $21.8 billion (CNY 152.8 billion) in the first half of 2023 to approximately $35.5 billion (CNY 248.7 billion) in the first half of 2024—a significant increase indicating challenges in collecting payments.
Additionally, Sungrow reported a negative cash flow from operating activities of approximately $3.7 billion (CNY -26 billion) in the first half of 2024, despite increased revenue. This discrepancy between revenue growth and cash generation raises important flags.
Strategic Moves and Long-Term Outlook
Furthermore, in late 2023, Sungrow announced plans to spin off its subsidiary, Sungrow New Energy, which focuses on renewable energy development and the construction of solar and wind power plants. While the idea of renewable energy stations sounds appealing—turning into stable cash cows after initial maintenance costs—the significant capital investment and long payback periods present challenges. In 2023, Sungrow New Energy reported revenues of approximately $37.9 billion (CNY 265.74 billion) with a net profit of only $1.6 billion (CNY 11.48 billion), reflecting a low net margin of under 4.5%.
In summary, while Sungrow Inverter stands as a global leader in the inverter space with strong product offerings and technological capabilities, the current issues, particularly the decline in overseas growth and challenges in profitability, may hinder its growth trajectory moving forward.