Chongqing HUAWEI Generator

    Inverter industry tracking update: In 2022, inverters remained a seller's market with high profit elasticity due to price increases

The installed capacity of distributed photovoltaics is rapidly increasing, and exports continue to grow rapidly. Recently, according to data from the National Energy Administration, the installed capacity of household photovoltaics increased by 5.1GW in December 2021, a month on month increase of 78%. The installed capacity for the whole year of 2021 reached 21.6GW, a cumulative year-on-year increase of 113%, accounting for about 41% of China's newly added photovoltaic installed capacity (53GW) in 2021, and has become the main driving force for photovoltaic demand in 2021. According to the General Administration of Customs, in 2021, 43.72 million inverters were exported, a year-on-year increase of 43%, with an export value of 5.13 billion US dollars, a year-on-year increase of 47%. Against the backdrop of strong overseas demand and rapid growth in distributed photovoltaics, the demand for inverters continues to improve, and there is strong certainty of performance growth in 2022.

    Short term disturbances do not hinder the fundamentals of the industry, and the outstanding core competitiveness lays the foundation for the trend of going global without change. From the perspective of export and installation data, the current demand for inverters at home and abroad is still strong, with sufficient orders from top enterprises and a supply shortage of products. The industry fundamentals continue to improve. In 2021, due to the rise in raw material prices and IGBT shortages, the production and gross profit margins of inverter companies have been disrupted. However, looking ahead to the long term, with the gradual promotion of IGBT localization substitution and improvement in the supply side, the shortage of IGBT supply is expected to ease in the second half of 2022. With rapid demand release and improved profitability, the high performance of inverter companies is expected to continue. Domestic inverter manufacturers are rapidly rising in the international market based on their cost-effectiveness advantages, rapid product iteration, and perfect channel layout. We are optimistic that domestic enterprises can achieve sustained growth in global market share through core competitive advantages such as channels and technology.

    Energy storage contributes additional value increment and opens up the industry's second growth curve. In the future power system dominated by new energy electricity, the energy storage market has broad prospects. Currently, leading inverter companies are actively expanding their energy storage business, and the revenue from energy storage business has significantly increased. At the same time, with the active promotion of global household photovoltaics, we are optimistic about the significant improvement of the space in the household energy storage market. We believe that a well-developed downstream channel layout is expected to bring synergistic advantages to the sales end, and we are optimistic about the improvement of energy storage economy and policy support, which will enable inverter companies to embark on a second growth curve.

    In 2022, inverters remained a seller's market. For inverter manufacturers that focus on distributed scenarios, the core factor affecting shipment volume in 2022 is still whether they can obtain chips. Inverters do not have to worry about selling, especially in the domestic market where they can be sold through integrators, central enterprises, and other means. It is expected that the domestic household and distributed installed capacity will reach a minimum of 45GW in 2022, with a year-on-year growth rate of 60-70%. The increment will be at least 15-20GW, and the global increment will be 35-40GW. If you can get the chip, you can get the market share.

    The profit elasticity of price increase is enormous. It is expected that the overall cost of inverters will remain stable or decrease compared to the previous period. After several rounds of price increases in 2021, the current gross profit margin level in the domestic distributed market may have reached around 25%, and the net profit margin is expected to increase from the previous 5-10% to around 15%. The domestic single W profit may double, and there is no need to worry about the impact of the increase in domestic market share on single W profit. Only domestic distributed inverters have guaranteed profits; The gross profit margin of overseas markets in 2021 is affected by shipping costs and exchange rates. Leading companies started raising prices by 9% in January, corresponding to 2-3 cents/w, accounting for less than 1% of system costs. The customer closure rate is high, and it is expected that other companies will follow suit with price increases. We expect the overseas gross profit margin to recover by more than 5 percentage points, and the single W profit may increase by 30-40%; We cannot rule out the possibility of further price increases due to supply shortages in the future.

    Top companies will still receive more supply from Infineon. For inverter manufacturers who have introduced chips domestically earlier and are more active in the application of silicon carbide devices, the growth rate will be more significant. Institutions are paying attention to Sunac Power (comprehensive development of wind solar energy storage and hydrogen), Jinlang Technology (high-quality enterprise of string inverters), Gudewei&Deye Co., Ltd. (high-quality enterprise of household energy storage), and Hewang Electric (4-5 times the growth rate of photovoltaics in 2022).