Economic Observer reporter Zheng Chenye

At that moment, it's not an exaggeration to say that Zhonghuan was in crisis, "Li Dongsheng, founder and chairman of TCL, recently commented on the situation of TCL Zhonghuan (002129. SZ) in 2024 to Economic Observer reporters.

That year, TCL Zhonghuan achieved a revenue of 28.4 billion yuan and a net loss of 9.8 billion yuan attributable to its parent company. During the same period, Longi Green Energy (601012. SH) achieved a revenue of 82.6 billion yuan and a loss of 8.6 billion yuan. TCL Zhonghuan's revenue is only about one-third of that of Longi Green Energy, but its losses are even greater, and it performs the worst among the top companies in the photovoltaic industry.

In August 2024, the General Manager of TCL Zhonghuan resigned. Li Dongsheng said that because he couldn't find a suitable person to take over for a while, he went to Zhonghuan to be the acting CEO for three months.

In the first half of 2026, TCL Zhonghuan achieved a revenue of 14.3 billion yuan, a year-on-year increase of 6.8%; The net profit attributable to the parent company was a loss of 3.2 billion yuan, a year-on-year decrease of 24.5%. That is to say, TCL Zhonghuan has not been profitable for two and a half years since 2024.

At this point in time, Li Dongsheng conducted a comprehensive analysis and reflection on the issues of TCL Zhonghuan, including his own oversight as chairman. This is the first time in six years that TCL has acquired Zhonghuan.

The origin of TCL Zhonghuan is Tianjin Semiconductor Materials Factory, established in 1958. Its main business includes photovoltaic silicon wafers and semiconductor silicon wafers, and it is one of the world's largest silicon wafer manufacturers in the photovoltaic field. In 2020, TCL Technology (000100. SZ) acquired Tianjin Zhonghuan Group for 12.5 billion yuan and indirectly controlled the listed company Zhonghuan Shares (later known as TCL Zhonghuan). In the first three years after the completion of the merger, TCL Zhonghuan caught up with the upward cycle of the photovoltaic industry, with a net profit attributable to the parent company of 4 billion yuan in 2021 and an increase to 6.8 billion yuan in 2022.

Recently, reporters from the Economic Observer have interviewed core management such as Li Dongsheng, TCL Zhonghuan CEO Ouyang Hongping, and TCL Zhonghuan COO Liu Yong in an attempt to understand what has happened at TCL Zhonghuan in the past six years, and how Li Dongsheng views the problems and transformation of TCL Zhonghuan.

Chronic Illness

In August 2024, the General Manager of TCL Zhonghuan resigned. Previously, TCL Zhonghuan still insisted on a high operating rate despite the continuous decline in industry prices, a strategy that has sparked controversy in the market. Li Dongsheng recalled that at that time, he couldn't find a suitable person to take over and had to go to Zhonghuan as the acting CEO for three months.

Then, the problems that Li Dongsheng saw went far beyond production capacity strategy. For example, all companies within the TCL system must release the financial report of the previous month before the 10th of the month, and hold a monthly work meeting between the 10th and 15th, but the financial report of Zhonghuan cannot be released for a long time. Li Dongsheng said, 'The original CFO needed to call each company to obtain financial figures, and the provided financial figures were often inaccurate.' The estimated figures often differed from the final results by 20% to 30%. For example, there is redundancy in the legal entities of certain factories in TCL Zhonghuan. The legal entities have one report and the operations have one report, but the two reports are not automatically integrated. The processes of the enterprise are also nested with each other, which affects operational efficiency.

Based on his own practical experience, Li Dongsheng summarized the problems of TCL Zhonghuan into five points.

The first point is that the business structure is unreasonable. The core industry chain of photovoltaic power generation is divided into four processes from upstream to downstream. Silicon material is purified polycrystalline silicon raw material, silicon wafer is pulled into single crystal rods and then cut into thin slices, cells are made on silicon wafer structures that can convert light into electricity, and modules are packaged into installable boards. A company that connects several links is called integration. TCL Zhonghuan used to only produce silicon wafers. In 2021, the board of directors explicitly proposed to achieve "moderate integration", with a production capacity ratio of 8:1:2 for silicon wafers, batteries, and modules. "By selling batteries and modules, it is difficult to maintain market understanding and make correct business judgments without contacting customers." However, by 2024, TCL Zhonghuan's battery output will still be zero, and module sales will only be 2.9GW (gigawatts), and the board's plan has not been implemented.

At the same time, downstream customers are extending upstream to make silicon wafers. For example, JinkoSolar (688223. SH) and Trina Solar (68859. SH) have both built their own silicon wafer production capacity, and TCL Zhonghuan's accessible market is rapidly shrinking. Li Dongsheng explained that the reason why downstream companies have been buying silicon wafers in the past few years is that they are losing money on self-produced silicon wafers. The losses are so large that they would rather stop production and purchase externally. Once the profit from silicon wafers exceeds the operating cash flow, the factory will restart.

The second issue is that the process is rigid and inefficient. The above-mentioned issues of delayed financial reports, redundant legal entities, and nested processes all fall under this category. Li Dongsheng summarized it as "rigid business processes and low operational efficiency".

The third issue is inventory judgment error. In August 2024, TCL Zhonghuan had a silicon wafer inventory of 21GW, accounting for 47% of the industry's current inventory, of which 63.5% were ultimately sold as non-A grade silicon wafers. In 2024, prices are falling like an avalanche, and the handling of this batch of inventory silicon wafers has caused us huge losses, "said Li Dongsheng. That year, sales exceeded 23 billion yuan, with a loss of 10.8 billion yuan, mainly due to the accumulation of inventory in the current period." Moreover, this inventory is completely unreasonable, and the price loss far exceeds that of peers.

Many integrated enterprises in the industry have started to reduce production or even halt production of silicon wafers after prices fell below the cost line. However, TCL Zhonghuan still insists on a high operating rate in the first half of 2024, with production increasing instead of decreasing. So, some downstream companies stopped producing their own silicon wafers and purchased them at a low price from TCL Zhonghuan, buying them back at a price lower than cost to process into batteries and components for sale.

Fourth, the cost of fixed assets investment is high. Li Dongsheng said that due to the high investment cost in the past, the depreciation cost is now twice as high as that of peers, and "it's still about the same amount today". This impact has continued until now, and 'change may require a relatively long cycle'.

The fifth point is insufficient globalization capability. China's photovoltaic products have long accounted for over 90% of the global market, and the marginal profit contribution of overseas business has always been higher than that of domestic business. However, TCL Zhonghuan's overseas business proportion in 2023, 2024, and 2025 is very low. Li Dongsheng said, 'This makes our business efficiency far inferior to our competitors.'.

Taking the five factors together, Li Dongsheng's judgment is that there is a huge gap between the culture of Zhonghuan and that of market-oriented enterprises. Before being acquired by TCL, Zhonghuan had its own management system that had been in operation for decades. After the merger, this system was not timely integrated, and the industry's upward performance concealed the underlying problems. Once the industry reversed, the problems were concentrated and exposed.

Make up a missed lesson

In 2024, Fu Heping, the Chief Human Resources Officer of TCL Huaxing, voluntarily applied to go to Zhonghuan and told Li Dongsheng, "I'm going to Zhonghuan; In early 2025, Ouyang Hongping was transferred from TCL Huaxing to Zhonghuan, where he was previously responsible for the manufacturing and operation of TCL Huaxing; Ju Xia is the general manager of TCL Huaxing Suzhou factory and went to Zhonghuan in 2024. In addition, TCL Zhonghuan's overseas team and backbone also come from other industries and global business departments of TCL. In Li Dongsheng's words, "Originally, Zhonghuan's (in this area) business was zero, so there were no experienced cadres.

These cadres gave up their familiar positions and took on risks. They were very familiar with their original positions and had good unit benefits, but when the company needed them, everyone jumped in without hesitation, "said Li Dongsheng.

The first thing is to change the business structure. Entering 2026, TCL Zhonghuan acquired a new energy company for 1.258 billion yuan, filling the gaps in batteries and components. The founder of Yidao, Liu Yong, was the former CTO of JA Solar (002459. SZ) and later became the COO of TCL Zhonghuan. The battery production capacity of Yidao was originally based on the TOPCon (Tunnel Oxide Passivation Contact Battery) route. After the acquisition by TCL Zhonghuan, funds were invested in the BC (Back Contact Battery) transformation. The BC technology moves all electrodes to the back of the battery to reduce the front shading loss, which is more efficient but the process is complex. TCL Zhonghuan has obtained over 1600 BC underlying patents for the SunPower system through its controlling stake in Maxeon.

Liu Yong told reporters, 'It's difficult for those who work on BC technology to bypass SunPower's patent pool.'. On this basis, TCL Zhonghuan has developed a printing and lithography technology route, reducing production steps by 60% and equipment investment of the same scale by more than 30%. In the first half of 2026, TCL Zhonghuan's silicon wafer sales were 54GW and component sales were 7.7GW. It is expected that by 2027, the production capacity ratio of silicon wafers, batteries, and components will be planned at 4:1:2.

The second thing is to change the organizational process. Firstly, it is necessary to close multiple legal entities. Li Dongsheng said, "It is easy to establish a legal entity, but very difficult to close it. Legal entities have legacy issues such as debt, credit, and taxation. Secondly, it is necessary to establish a digital management system. TCL Zhonghuan will have almost zero in this area by 2024, and "all business data will have to be done manually with computers, and cannot be connected into a network". Regarding this, Ouyang Hongping said that TCL Zhonghuan used to be a silicon wafer company with a biased design, and this transformation aims to "move from an internal oriented to a market-oriented, customer-oriented, and product competitive organizational form.

The third thing is to do overseas business. In the first half of 2026, TCL Zhonghuan's overseas component shipments were 2GW, almost zero compared to the same period last year. The management's goal is for overseas revenue and domestic revenue to each account for 50% by 2029.

In the first half of 2026, TCL Zhonghuan's revenue increased by 6.8% year-on-year, and its losses narrowed by a quarter year-on-year. The goal for the second half of the year is to achieve a year-on-year growth of over 40% in the photovoltaic business. Will we dare to increase our photovoltaic growth by 40% in the second half of this year? We also have some concerns internally, and the consensus we have discussed is that we must put the target in place, "said Li Dongsheng." Today, TCL Zhonghuan set the target there not to give the market a pie, but to give our team an incentive and pressure. ”

Is integration the differentiation advantage of TCL Zhonghuan? Li Dongsheng's answer to this is negative: "Just doing what our peers have been doing for a long time." He believes that peers have long extended from silicon wafers to batteries and components, and Zhonghuan has made up for the things that should be done but were not done before according to the laws of industry development. The real differentiation lies in technology and market.

Previously, in the component market, all components of TCL Zhonghuan had almost no presence. After more than two years of effort, at least our presence has been seen in the industry. ”Li Dongsheng said.

Reflection

After acquiring Zhonghuan, I initially let the original Zhonghuan team manage it, "Li Dongsheng explained why he only intervened six years after the acquisition.

In 2020, during the M&A period, the industry was in an upward trend, and Zhonghuan's performance was good. Its main business had a relatively competitive advantage at that stage. During the period of rapid growth in the industry, the profitability of batteries and components cannot match that of upstream silicon materials and wafers, and the operating performance conceals some underlying problems of Zhonghuan, "said Li Dongsheng." But when the industry reverses, these problems are exposed. I believe all enterprises are the same. When the industry experiences a sharp downturn, they will find many problems, and some problems will be very serious. This is also where I, as the chairman, overlooked the management of Zhonghuan in the early stage

But Li Dongsheng does not consider himself the leader of the Central transformation: "In the past few years, I emphasized that it was not me who jumped in to do it, I jumped in just to promote a transitional period. I took half a year to practice it myself for a period of time, and later it was all done by the team." Although he has attended almost every monthly meeting of Central for the past two and a half years, the entire business work is completed by the team. The achievements of TCL Zhonghuan's transformation and today's results are the result of the Zhonghuan team's hard work, and my contribution in it is not that great. ”He said.

Li Dongsheng compared this change with a change 20 years ago - in 2004, TCL acquired businesses related to Thomson and Alcatel, and in 2005 and 2006, suffered consecutive huge losses and was labeled * ST by the Shenzhen Stock Exchange. He wrote an article on the intranet titled "The Rebirth of Eagles", admitting that he "did not have the courage to puncture" the problems accumulated internally.

From the perspective of business transformation, these two transformations are similar. The reason for promoting this round of transformation in Central was that the company was already in crisis at that time, and without transformation, the company could have collapsed. Transformation was necessary, "said Li Dongsheng.

I have been working in a company for over 40 years and I believe that corporate culture and spirit have a huge impact on a company's competitiveness. "Li Dongsheng believes that the growth of emerging technology industries is very different from traditional manufacturing industries." We must have a long-term strategy and constantly accumulate our own abilities. We must have stronger organizational and team capabilities, as well as stronger technological innovation capabilities than our peers, in order to maintain continuous improvement in the industry's development cycle fluctuations.

His view on the industrial cycle is: "As a manufacturing industry, we have to face the industrial cycle, which cannot be avoided." The most effective way to cope with the cycle is to improve relative competitiveness. "When the industry rises, we should make more money than others, and when the industry falls, we should lose less than others. Relative competitiveness is the most effective way for enterprises to cross the cycle. As long as relative competitiveness leads, they can cope with any industrial cycle.

But 'crossing cycles' does not mean repeating the previous cycle. Li Dongsheng said that the development of industries is not simply a repetition. The key to whether enterprises can seize opportunities in the next cycle is to establish new capabilities, and the most direct one is product innovation capability. For example, for the photovoltaic industry, cells range from PERC (passivated emitter and back cell) to TOPCon, then to BC and HJT (heterojunction), as well as space photovoltaics, flexible photovoltaics, surface photovoltaics, and building decoration photovoltaics. These are all new market spaces that require the ability to seize these new opportunities.

As long as a company stands firm and can survive, there will be opportunities in the future, "said Li Dongsheng.

(Author Zheng Chenye)