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01Chinese photovoltaic company Shijing Technology plans to build a photovoltaic cell project in Puebla, Mexico, which is expected to reach production in 2025.

02 The move aims to meet the needs of JinkoSolar, and in the future, it can also supply other large factories that are closer to each other, or extend to the upstream and downstream of the industrial chain on its own.

03However, the uncertainties facing Shijing Technology in Mexico include long-standing contradictions between the United States and Mexico, and whether other Chinese counterparts are moving too fast.

04 Whether it is the Biden administration or "Trump 2.0", Chinese photovoltaic companies want to squeeze into the US market, and building factories in the United States is the only way out.

The above content is generated by Tencent's hybrid model and is for reference only

Author: Lafayette

Source: Alpha Workshop Green

Introduction: Whether it is the Biden administration or "Trump 2.0", Chinese photovoltaic companies want to squeeze into the US market, and building factories in the United States may be the only way out.

New "narrow door".

The layout of China's photovoltaic industry chain "near the United States" has made new progress.

On October 28, Shijing Technology (301030. SZ), a wholly-owned subsidiary of Anhui Shijing Solar Technology Co., Ltd. (hereinafter referred to as Shijing Solar Energy), announced on its official WeChat account that the company will build a photovoltaic cell project in Puebla, Mexico, to produce high-efficiency N-type TOPCon cell products, covering the mainstream size of the industry, and is expected to reach production in 2025.

The project has received strong support from local government departments, including policy preferences in terms of resource allocation and infrastructure, according to the company.

The author believes that the location of this new overseas factory is quite meaningful.

The state of Puebla is conveniently located in central Mexico, just 150 kilometers from the capital, Mexico City. The project is surrounded by a number of industrial parks with well-developed industrial infrastructure.

What's more, Mexico shares a border with the United States, and most of the sites of Chinese PV companies in the United States are closer to Mexico.

For example, JA Solar (002459. SZ) invested US$60 million in Phoenix, Arizona, to build 2GW of PV module capacity; Trina Solar (688599. SH) and Canadian Solar (688472.SH) are building 5GW of module factories in Texas each, while TCL Zhonghuan (002129.SZ) also has 3GW of planned capacity in New Mexico.

The three U.S. states mentioned above are bordering Mexico.

Large photovoltaic manufacturers have always had their own "disciples". In the cell sector, LONGi Green Energy (601012. SH) hired Yingfa and Junda (002865.SZ) to do OEM, Mingpai Jewelry (002574.SZ) bound Trina Solar, etc.

JinkoSolar (688223. SH) also has a very close relationship with Shijing Technology.

On March 8 this year, Sichuan Shijing New Energy Technology Co., Ltd., a joint venture company jointly established by the two parties, invested in the Sichuan Shijing high-efficiency solar cell production and manufacturing base project.

On the same day, Shijing Technology announced that Shijing Solar signed the "Cell Procurement Contract" with JinkoSolar and its subsidiaries. During the term of the contract, Pure Solar will sell approximately 2.5 billion units of 182-size solar monocrystalline cells/Class A cells to JinkoSolar and its subsidiaries.

In addition, the two sides also have R&D and production projects in Ziyang, Sichuan.

In August, JinkoSolar announced that its module plant in Florida had received a tax credit under the U.S. Inflation Reduction Act (IRA). The plant has an annual capacity of 400MW, and the new 2GW of US capacity is also actively seeking subsidies.

In this way, JinkoSolar's module factories in the U.S. may be able to optimize the supply chain in collaboration with Solar's cell factories in Mexico, that is, the upstream cells of Solar's upstream cells are produced in Mexico and then shipped to Jinko U.S. for processing into modules.

For JinkoSolar, under the conditions of overcapacity, the significance of finding specialized OEM production is becoming more and more prominent.

Due to the increasing losses in the wafer and cell segments, the vertically integrated production model has greatly reduced the profitability of large manufacturers, resulting in a very tight cash flow for large manufacturers.

By cooperating with Singjing Solar to source cells, JinkoSolar can not only ensure the security of the supply chain, but also effectively reduce the overall cost of doing business in the United States, and reduce the risk that the entire industry chain will be controlled in the United States in the future.

Shijing Technology's move is also quite meaningful - with the accumulated experience in the research and development of environmental pollution control equipment, it is usually the first step for cross-border photovoltaic enterprises to cut into the cell link to do professional foundry.

With the construction of a factory in Mexico, Shijing Technology can not only meet the needs of JinkoSolar, but also supply other large factories that are closer to each other in the future, or extend to the upstream and downstream of the industrial chain by itself.

Previously, in order to circumvent sanctions, Chinese PV factories mostly chose to break through from Southeast Asia.

However, with the US canceling tariff exclusions for PV modules in four Southeast Asian countries and launching anti-dumping and countervailing investigations, the path through Southeast Asia has been blocked.

Now, in addition to setting up factories in the United States, Chinese PV companies are building cell factories in Mexico, using the tariff agreement between Mexico and the United States to circumvent restrictions, and then sending products to the United States for processing into modules – this "curve to the United States" strategy may become a new way to enter the American market.

"Trump 2.0" variable

It is worth noting that the construction plan announced by Scot Solar was formulated before the results of the current election in the United States, which is in line with the existing sanctions policy.

On Nov. 4, at a campaign rally in Raleigh, North Carolina, Trump made a tough stance on trade.

He threatened that if the Mexican government does not take steps to control illegal immigration across the border, if elected, it will impose a 25 percent tariff on all Mexican imports, possibly as high as 100 percent.

Previously, after the Section 232-based national security tariffs went into effect on July 10 of this year, the United States imposed tariffs of 25% and 10% on steel and aluminum products in Mexico, aimed at preventing China and other countries from transshipment goods through Mexico to circumvent U.S. tariffs.

Considering that the specific implementation of the "global tariffs" has not yet been clarified, and there are still nearly two months before Trump enters the White House, the current photovoltaic industry chain is still in a relatively mild period of the "Trump deal".

However, judging from the recently circulated Trump's "policy platform", combined with his previous political position, for a long time in the future, Trump's domestic goal is still to "return to manufacturing" and promote employment; Foreign policy will continue to be "America First."

The economic benefits of Chinese photovoltaic enterprises setting up factories in the United States are not obvious. Because the degree of automation in photovoltaic manufacturing is very high, it is difficult to bring too many jobs.

In addition, most of the Chinese PV companies that have built factories in the United States have benefited from the preferential policies stipulated in the IRA signed by Biden on August 16, 2022.

The IRA is one of the largest climate change investment bills in U.S. history, and the incentives are twofold:

First, $30 billion in production tax credits to accelerate solar module and cell manufacturing and critical minerals processing in the United States;

Second, a $10 billion investment tax credit for the construction of cleantech production facilities, such as solar module manufacturing plants and other cleantech plants.

According to the above policies, the current subsidies for PV from silicon wafers to inverters are more than 50%.

If the new Trump administration insists that Chinese PV companies build factories in the United States, it is feasible for companies that have a subsidy generation link and can apply for subsidies.

If they do not apply for subsidies, there is no economy at all based on the current production costs, and Chinese PV companies will not be able to build a complete industrial chain in the United States.

In an exclusive July 17 interview with Bloomberg Businessweek at Mar-a-Lago, Trump was critical of the IRA and intended to repeal the bill.

He argues that the bill actually increases inflation, not lowers it. He also pointed out that there were problems with the allocation of funds in the bill, arguing that the funds should not have been used.

If Trump still insists on the above propositions after taking office, or if PV overcapacity continues to hit domestic manufacturing companies in the United States, the "hammer" of sanctions may be revived again.

Whether it is the Biden administration or "Trump 2.0", Chinese PV companies want to squeeze into the US market, and building factories in the United States is the only way out.

However, as far as the industry is concerned, if China's photovoltaic industry chain in Mexico develops into a cluster of Southeast Asian scale in the future, it cannot be ruled out that the United States will fill the nearshore "loophole" of Mexico and impose global tariffs.

In addition to the long-standing contradictions between the United States and Mexico, the uncertainties faced by Shijing Technology, which intends to produce cells in Mexico, depend on whether other Chinese counterparts are moving too fast.

What do you think of the "curve to the United States" strategy of Chinese PV companies to build factories in Mexico? Can this layout effectively avoid potential trade risks? Feel free to share your insights in the comments section!

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