Longi workforce reduction for cost-cutting amidst solar industry

As the global solar industry grapples with overcapacity and intense competition, Longi Green Technology Energy Co., the world’s largest solar manufacturer, is taking drastic measures to stay afloat.

In a bid to reduce costs, the Chinese company has announced that it will cut nearly one-third of its workforce, which was around 80,000 people as of the end of last year. This move comes after similar job cuts in November and follows years of expansion across the industry.

The cuts are being felt at Longi’s Shanghai office, where free coffee is no longer served. The company has also disabled an internal function that allows employees to view staff totals as concerns mount about job losses among rank-and-file workers. Such measures reflect the tough choices facing solar manufacturers as they grapple with a cyclical industry prone to boom and bust cycles driven by government subsidies.

Longi’s net income plunged 44% in the third quarter of this year, while shares have fallen around 70% since their peak in 2021. The solar industry’s overcapacity and intense competition stem from a global glut of panels that has driven down prices, making it difficult for manufacturers to turn a profit.

With the solar industry facing an uncertain future, Longi is hoping that cost-cutting measures will help it weather the storm. However, some experts warn that further job losses could be on the horizon as the industry continues to grapple with overcapacity and intensifying competition.

What is the historical pattern of growth and stagnation in the solar industry, and how do government subsidies impact these cycles?

The solar industry is known for its cyclical pattern of growth and stagnation, driven primarily by government subsidies. This can be seen in the case of Longi Green Technology Energy Co., which is currently undergoing significant job cuts in response to overcapacity and intense competition in the global solar industry. The company announced similar layoffs in November and has already let go of thousands of employees due to years of expansion across the sector.

Longi’s struggles are part of a larger trend in the solar industry, which has experienced boom and bust cycles for decades. During periods of growth, government subsidies can drive demand and lead to significant increases in production capacity. However, as subsidies expire or become less generous, demand slumps and producers are left with excess inventory. This overcapacity leads to price wars and intense competition, which can be devastating for smaller players in the market.

In Longi’s case, net income fell by 44% in Q3 of 2023, and shares have dropped around 70% since their peak in 2023. This trend is not unique to Longi; other major solar manufacturers like First Solar and Hanwha Q CELLS have also reported declining revenues and net losses in recent quarters.

The cyclical nature of the solar industry has important implications for investors, policymakers, and consumers alike. For investors, it underscores the importance of careful risk assessment and a long-term perspective when investing in this sector. Policymakers must also consider the potential impacts of subsidy programs on both demand and production capacity, as well as the need to provide support for workers affected by industry downturns. Consumers should be aware that solar prices may be subject to volatility during periods of overcapacity, which could impact the long-term affordability of solar energy solutions.

Looking ahead, there are several possible scenarios for the future of the solar industry. One potential outcome is continued growth driven by declining costs and improving technology, as well as increasing demand from emerging markets like India and Southeast Asia. Another possibility is a prolonged period of stagnation, driven by ongoing trade disputes, policy uncertainty, and oversupply. Ultimately, the future of the solar industry will depend on a complex interplay of economic, technological, and political factors, which must be carefully monitored and managed to ensure sustained growth and long-term viability.