Sungrow (300274. SZ), which may be disappointed in the near future with the winning bid for two major projects in the region.

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Just as the Saudi SEC Phase III 10GWh project is in full swing, a person familiar with the matter revealed that the first winning bidder is BYD (002594. SZ), which is currently in deep negotiation with the details of the contract. In addition to the first phase of the 2GWh project that BYD has won the bid, if it is successfully implemented, BYD will get 12GW of the overall order of Saudi Arabia's SEC project, surpassing Sungrow.

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The SEC project in Saudi Arabia is divided into three phases. In July this year, Sungrow won the bid for the second phase, with a capacity of up to 7.8GWh.

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Another major project, the first 10GWh bid of the Abu Dhabi 20GWh data center distribution and storage project in the United Arab Emirates, was originally expected to favor Sungrow to win the bid.

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However, there is also news in the industry that BYD may cooperate with CATL (300750. SZ) to share this big order. This is a big blow to Sungrow, which has a market share of more than 70% in the energy storage system integration link in the Middle East.

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The Middle East is dominated by large projects invested by the state. The local power grid infrastructure is weak, and the construction of large storage facilities is urgent. Huatai Securities estimates that the demand for large reserves in Saudi Arabia and the United Arab Emirates alone will reach 57.4GWh in 2030.

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The SEC project in Saudi Arabia and the Abu Dhabi project in the United Arab Emirates are the two largest global tenders to date.

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If Sungrow loses the bid, one possible reason is its offer. In major markets around the world, Sungrow's quotations are generally 5%-10% higher than those of its peers. This is a significant disadvantage especially in the Middle East, where electricity prices are relatively low.

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BYD and CATL, which are competing with Sungrow, are both suppliers of energy storage cells, and they have a cost advantage in core components.

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The solution used by the two of them is a cell definition system. With the energy storage battery as the core of the system, with the accumulation and brand awareness in the field of new energy vehicles and batteries, the two latecomers have successfully entered the field of energy storage system integration, and they are fierce.

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The scheme adopted by Sungrow is to define the battery cells in the system. Cells are customized to meet the specific requirements of the system in terms of performance, size, cost, etc., to achieve optimal system performance and cost-effectiveness. Although the system performance is better, the cost of battery customization is also higher.

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02 "Latecomer" enters the order ranks\n

The reason why Sungrow was able to stand out in the PV overcapacity last year was that it took the lead in the integration of photovoltaic and storage with the inverter "breaking the circle", forming a closed-loop business model, and then becoming a company that surpassed LONGi Green Energy (601012. SH).

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"Profound brand accumulation, strong technology research and development strength and global channel layout", the three major competitive advantages are the evaluation given to Sungrow by the outside world.

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In the first three quarters of this year, Sungrow's energy storage system shipments were 17 GWh, an increase of more than 60% compared with 10.5 GWh last year.

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It is worth noting that Sungrow's growth in the field of large storage is largely due to the vigorous development of the entire industry.

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According to the new research report of Soochow Electric, in 2024, the installed capacity of domestic energy storage will be 60 kWh, a year-on-year increase of 50%. The U.S. market is expected to have an installed energy storage capacity of 35 kWh in 2024, a year-on-year increase of 100%, due to the decline in the cost of battery cells and the ITC incentive policy.

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Driven by the United Kingdom, Italy and other countries, the European market is expected to have an installed energy storage demand of 7.5 kWh in 2024, a year-on-year increase of 100%, and it can double to 14-15 kWh in 2025. In addition, emerging markets such as the Middle East, Chile, Australia, and India will have a large storage capacity of 10 kWh in 2024, a year-on-year increase of 110%.

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However, from the perspective of the competitive landscape, Sungrow's leading edge is gradually shrinking.

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The entry of domestic battery manufacturers has made the competition pattern of Sungrow's "dominant" large storage inverter market begin to change.

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Inverters are an asset-light business, and the operating rate can be adjusted according to orders, unlike the main material, which is dependent on production capacity. Its price war history was fierce from 2013 to 2017, and after several years of competition, the inverter market pattern has been relatively stable.

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Especially in the field of high-power power stations, after Huawei temporarily withdrew from the European and American markets, Sungrow occupied a leading position in the high-power energy storage inverter market.

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However, companies such as BYD and CATL have also begun to fight, and the competitive landscape of the inverter market is changing.

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BYD and CATL do not have their own energy storage inverter capacity. If the rumors are true and Sunshine fails to be selected for the Abu Dhabi project, then Sineng Electric (300827. SZ), NARI (600406. SH) and Huawei have the opportunity to become inverter suppliers for this project. This will promote domestic manufacturers, which originally lagged behind Sungrow, to take this opportunity to enter the ranks of international large-scale energy storage orders.

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03 Strong enemies are around\n

Globally, Sungrow's strong competitors are not limited to the Middle East. In important markets such as the United States and Europe, the strong rival forces of Sungrow Power Supply are gradually becoming a climate.

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In the U.S., Tesla has taken a leading position in the industry thanks to its deep roots in the home market and a strong brand presence in the field of energy storage.

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In the face of this challenge, Sungrow has set an ambitious goal this year to surpass Tesla and become the top supplier of energy storage systems in North America. However, the Trump administration is about to take office, and its emphasis on "Made in America" and tariff policy adjustments have added an additional competitive advantage to Tesla.

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Increasing tariffs on Chinese imports to 60% will have little impact on battery cell and energy storage inverter manufacturers. Domestic producers are still able to pass on the cost of tariffs to downstream customers by raising prices.

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However, for Sungrow, which is engaged in system integration business in the U.S. market, the impact is great.

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At present, the gross profit margin of Sungrow's energy storage system business in the United States is about 40%, and it can cope with the 25% tariff; However, if the tariffs are further raised to 60% or higher, Sungrow's advantage in price competition will be greatly weakened, and its competitive advantage over Tesla will also be lost.

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If Sungrow fails to establish a production base in North America or establish cooperation with local companies, its market share may be eroded by more competitors.

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In the North American market, Envision Energy, another domestic rival, is rapidly emerging.

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Envision Energy has independently developed the entire industry chain, from battery cells, battery management systems, power conversion systems, to energy management systems, realizing self-sufficiency in the core components of energy storage systems and effectively reducing costs.

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Envision Energy has a manufacturing base in North America and has established a strategic partnership with Fluence Energy to ensure the supply of capacity in the North American market.

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In the European market, in addition to Envision Energy and CATL, there are also Follens Energy Storage and Trina Energy Storage (688599. SH).

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In 2024, Trina won two projects in Germany in Europe: the Tangermünde project with a 17.5MW energy storage system and the Strübbel project with a 50MW benchmark battery storage system.

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In terms of volume, although Trina energy storage cannot be compared with Sungrow for the time being, photovoltaic companies have quickly entered energy storage, making the "integration of photovoltaic and storage" that Sunshine is proud of no longer a unique competitive advantage.

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With the reduction of energy storage costs and the reduction of LCOE, it is expected that by 2025, the energy storage industry will usher in a turning point of profitability. At that time, more domestic enterprises will join the competition and share the opportunities of the energy storage market.

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In the past, "smooth sailing" was a prologue. Sungrow's brutal baptism of competition may be on the way.

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This article is from the WeChat public account "Alpha Factory Green", author: Fujin, 36 Krypton is authorized to publish.

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