Key Takeaways

  • Solar manufacturers like JinkoSolar are attempting to escape massive industry oversupply by pivoting into high-risk AI venture capital investing
  • Beijing has paused new energy storage construction to prevent the kind of unbridled competition and overcapacity seen in the EV and solar sectors

image credit: Bamboo Works

China’s once-booming new energy landscape is currently grappling with severe growing pains. Across the board, manufacturers are facing the harsh reality of massive overcapacity, forcing both companies and regulators into unusual maneuvers. In the struggling solar sector, desperate panel makers are abruptly transforming into venture capitalists to chase the AI wave. Meanwhile, in the closely related energy storage space, the Chinese government has taken the rare step of freezing new infrastructure projects to prevent yet another bubble from forming.

We’ve watched the solar panel sector suffer from massive oversupply for the last two years. Tired of waiting for a cyclical turnaround, JinkoSolar (NYSE:JKS) abruptly announced last week that it’s entering the high-tech investment business. It unveiled its first moves as a venture capitalist in frontier industries, pouring between 70 million yuan and 100 million yuan ($10 million to $14 million) each into high-flying AI startups Moonshot, StepFun, and SiliconFlow.

We often refer to these types of businesses as "chameleon companies" because they are constantly changing their colors to match the latest market trends. However, investors weren’t thrilled by this transformation. JinkoSolar’s stock plunged nearly 10% over the three trading days following the announcement, demonstrating that the market saw right through this attempt to create artificial excitement.

This reaction is hardly a surprise. The company used to be a pure-play solar manufacturer with nearly 20 years of expertise in that field. Now, it’s acting as a hybrid solar manufacturer and high-tech venture capitalist. Most investors prefer pure-play businesses. If they want to put money into venture capital, they can choose from plenty of asset management firms with strong track records, rather than relying on a solar company stepping far outside its core competency.

Yet, JinkoSolar is not alone in this pivot. Back in June, another solar materials company, Daqo New Energy (NYSE:DQ), announced it was moving into the manufacturing of electrical equipment for AI data centers. With solar stocks currently trading near all-time lows due to the massive overcapacity, we expect to see more of these manufacturers attempting to tie themselves to AI — today’s biggest investment theme — just to generate some buzz.

However, for investors looking at the solar sector, we believe the best strategy is to stick with pure-play companies that have not strayed from their central business. AI is highly volatile and increasingly suffering global backlash. Eventually, government intervention and the natural elimination of obsolete capacity will turn the solar cycle around, and pure-play companies will be the ones positioned to benefit.

Putting the brakes on energy storage

Jinko’s pivot away from the bursting solar bubble looks a lot like another rapidly inflating bubble: energy storage. According to a recent scoop from financial media outlet Caixin, Beijing has ordered a pause on the construction of new power and energy storage projects pending an industry review.

Energy storage facilities have become all the rage lately for storing the massive amounts of excess power produced by China’s solar and wind farms. Because the state-managed power grid was unable or unwilling to absorb overcapacity from these farms, energy-saving batteries became the next logical step. Chinese entrepreneurs adopted a "why not?" mentality, and solar manufacturers — including JinkoSolar — pushed heavily into this field. Inevitably, swarms of competitors blindly chased the promising trend.

But central authorities became alarmed when they noticed that planned new capacity for this year had already climbed to roughly 1.5 times China’s total projected battery output for 2025. Consequently, Beijing put the brakes on all new construction in mid-May. Moving forward, only companies that can demonstrate relatively high utilization rates for their existing energy storage capacity will be allowed to proceed with new construction next year.

This proactive halt is highly unusual. Beijing typically loves infrastructure spending, frequently using it to spur economic growth during troubled times. However, it seems the government has finally learned from the unbridled, irrational competition that plagued the EV and solar sectors. They are stepping in much earlier in the process to keep the genie in the bottle and prevent destructive involution.

There is a notable irony here. This domestic crackdown on excess capacity is happening exactly as the Chinese government tells the U.S. and Europe that there is no overcapacity in China, claiming the issue is a Western fabrication designed to limit China’s growth. It is not totally surprising to see the apparatus speaking out of both sides of its mouth. While a portion of this battery-saving capacity is undoubtedly meant to meet growing global export demand, Beijing is clearly terrified that unchecked competition will destroy profitability, lead to sustained losses, and ultimately threaten domestic employment and social stability. For those looking to invest in newly listed energy storage companies, our advice mirrors our outlook on solar panels. The market is waiting for order to be restored. Until Beijing allows capacity to be built again, we advise sticking with bigger, established names that possess scale, reasonable capital, and proven management teams who have successfully navigated earlier down cycles. Success in China’s new energy sector remains a waiting game — and entirely a question of timing.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.