Undeterred by the coronavirus crisis, the world's biggest solar panel-makers are boosting production in the hopes of growing their market share and driving smaller rivals out of the market. It is a familiar though potentially risky strategy.

Although the pandemic's economic upheaval is expected to reduce global solar demand this year, manufacturing giants JinkoSolar Holding Co. Ltd. and LONGi Green Energy Technology Co. Ltd. plan to increase their panel-making capacity by 56% and 114%, respectively. Other leading manufacturers are making similar moves, pushing up worldwide production capacity by an estimated 15% in 2020, according to Daiwa Capital Markets Hong Kong Ltd.

The solar industry has been shaped for years by manufacturers battling to extend their control by aggressively expanding production. This expansion drove down solar panel prices and kept profit margins thin. Now, executives at big manufacturers are betting that a fresh flood of equipment pouring into a sluggish market will sweep away weaker competitors, leaving "only the strongest still standing," as Gener Miao, JinkoSolar's chief marketing officer, said on a June earnings call.

This strategy reflects "a quite bullish long-term view of solar demand globally" on the part of the leading solar panel-makers, most of whom are headquartered in China, said Lu Wang, an analyst at Sanford C. Bernstein & Co. LLC in Hong Kong. JinkoSolar and others plan to "continue to expand their capacity in a downward phase so that they can just grab market share immediately when the demand starts to pick up."

High hopes

As 2019 drew to a close, analysts and executives looked forward to a booming 2020. "The solar industry is bounding ... into a new decade with strong demand in Europe, the U.S., and signs of strength in emerging markets such as the Middle East," Paula Mints, chief analyst at SPV Market Research, wrote to clients in December 2019.

Conditions soon deteriorated.

By February, Beijing's efforts to contain the coronavirus had started to disrupt the solar industry's global supply chains. Stock markets plunged the following month as the virus swept through the rest of the world and the effects of an oil price war collided with fears that the pandemic would lead to recession. Still, Chinese solar companies continued forecasting double-digit growth in the global market.

"I feel confident that ... in this whole year, the delay of this one, two, three or more months will not stop us or will not slow down our development activities," Yumin Liu, CEO of solar project developer ReneSola Ltd., told analysts in March.

Weeks later, though, ReneSola slashed financial guidance after the sale of two solar projects was delayed due in part to business closures caused the pandemic. Additional setbacks could be coming, the company warned.

The pandemic is likely to reduce growth in global solar demand by 18% this year, according to the International Energy Agency, due to supply chain disruptions, government lockdown orders and social distancing guidelines, as well as "emerging financing challenges."

Analysts at Oppenheimer & Co. Inc. on July 1 said that while the industry has begun adjusting to a "post-COVID-19 environment ... global installs are tracking below expectations."

Path to profitability

One likely result of this new environment is a smaller number of more dominant suppliers. Analysts and industry observers have long viewed consolidation as a path to greater profitability for solar manufacturers. Adding to the pressure on smaller companies, officials in Beijing are pushing solar manufacturers to upgrade their equipment and infrastructure, according to executives.

"It looks as if we are headed to significant consolidation in China, with some massive manufacturers ... remaining," said Mints. "In theory, this would lead to increased prices."

Instead of increasing profits, though, waves of manufacturing expansion in China in recent years have fueled market gluts that dragged down solar panel prices and "led to the recession of the overall industry," United Renewable Energy Co. Ltd., a solar-panel maker in Taiwan, said in an annual report in April.

Even with an expected rebound in solar demand next year, the global market is likely to remain awash in panels, said Wang. "And the smaller [companies], of course, will very like be squeezed out during this consolidation process."

Still standing

Companies like JinkoSolar and LONGi are betting that they will be among the manufacturers to emerge from the latest downturn in a stronger position than before.

Leading panel-makers will have more "pricing and bargaining power" in a more concentrated market, said Dennis Ip, an energy research analyst at Daiwa Capital Markets. The firm expects five manufacturers — LONGi, JinkoSolar, Trina Solar Co. Ltd., JA Solar Technology Co. Ltd. and Canadian Solar Inc. — to control 53% of the global solar panel market next year.

For now, JinkoSolar is still subject to the market's swings, said Miao, the company's chief marketing officer. "Our strategy is always to follow the market," he said on an earnings call in June. "When we see the market price is dropping, definitely our pricing will drop."

And with solar companies under constant pressure to lower prices in order to beat out competing energy sources, it is unclear whether a few big players expanding their production in a slowdown will change that dynamic.

"The big Chinese manufacturers never stopped adding capacity," Mints said, and prices still "do not support healthy margins, nor do they encourage a healthy industry."