Daqo New Energy: Navigating Legal Risks and Operational Resilience in a Turbulent Solar Market

The solar photovoltaic (PV) industry is no stranger to volatility, but Daqo New Energy (NYSE: DQ) finds itself at the intersection of regulatory scrutiny, market overcapacity, and geopolitical tensions. As the company navigates a cyclical trough marked by sharp declines in polysilicon prices and legal challenges, investors must weigh its operational resilience against mounting risks.

Legal Risks: From Israeli Blacklists to Chinese Price Controls

Daqo's legal exposure has expanded in 2025, with the Israeli Ministry of Economy's Industrial Cooperation Authority blacklisting the company following its 2024 tender winDaqo New Energy Updates Legal Case^[1]. This move underscores growing international wariness of Chinese firms operating in politically sensitive markets, particularly amid U.S.-China trade tensions. Domestically, Chinese regulators have intensified efforts to curb destructive pricing practices. In July 2025, the government proposed a draft price law to enforce minimum pricing floors, a direct response to the solar industry's overcapacity crisisDaqo New Energy Announces Unaudited Second Quarter 2025 Results^[2].

These measures have had immediate effects. Polysilicon spot prices rebounded from RMB30/kg in June to RMB55/kg by July 2025, signaling improved industry disciplineDaqo New Energy Announces Unaudited Second Quarter 2025 Results^[2]. However, for Daqo, the regulatory environment remains a double-edged sword. While price floors could stabilize margins, the company's recent legal settlement—where a subsidiary's RMB1.958 billion contract claim was reduced to RMB3.3 million—highlights the unpredictability of enforcementDaqo New Energy Updates Legal Case^[1]. Such outcomes may deter future contractual commitments, complicating long-term planning.

Operational Resilience: Cash Reserves and Strategic Adjustments

Despite these challenges, Daqo's operational resilience is evident. The company reported a Q2 2025 net loss of $76.5 million, driven by a 39% revenue drop to $75.2 million and a utilization rate of just 34% of nameplate capacityDaqo New Energy Announces Unaudited Second Quarter 2025 Results^[2]. Yet, its balance sheet remains robust, with $2.06 billion in cash, short-term investments, and fixed-term deposits as of June 30, 2025Daqo New Energy Announces Unaudited Second Quarter 2025 Results^[2]. This liquidity buffer provides flexibility to weather prolonged downturns or invest in capacity optimization.

Strategically, Daqo has adjusted production to align with weak demand. Q2 output of 26,012 MT of polysilicon, while slightly higher than Q1's 24,810 MT, reflects a deliberate slowdown to avoid exacerbating overcapacityDaqo New Energy Announces Unaudited Second Quarter 2025 Results^[2]. CEO Xiang Xu has framed the current environment as a “cyclical trough,” emphasizing that government-led anti-involution measures—such as the proposed price law—could catalyze a recoveryDaqo New Energy Announces Unaudited Second Quarter 2025 Results^[2].

Leadership Shifts and Governance Implications

Corporate governance has also evolved. The departure of independent director and audit committee chair Wong in June 2024Daqo New Energy Announces Unaudited Second Quarter 2025 Results^[2] raises questions about board oversight amid regulatory pressures. While leadership changes are common, the timing coincides with heightened scrutiny of Daqo's compliance practices. Investors should monitor whether this signals a broader shift toward risk mitigation or a lack of confidence in navigating the current regulatory landscape.

Long-Term Investment Viability: Balancing Risks and Opportunities

For long-term investors, Daqo's prospects hinge on two factors: the sustainability of Chinese regulatory interventions and the company's ability to adapt to structural market shifts. The rebound in polysilicon prices post-July 2025 suggests that government measures are having an effect, but enforcement consistency remains uncertain. Additionally, Daqo's Israeli blacklist—a rare move—could limit its access to non-Chinese markets, reducing diversification benefitsDaqo New Energy Updates Legal Case^[1].

Historically, earnings releases have shown a modest average return of 3.7% seven days post-announcement, though the effect fades quickly, suggesting limited long-term strategic value for buy-and-hold investorsBacktest of DQ Earnings Release Impact (2022–2025)^[4].

However, the company's financial strength and strategic flexibility cannot be overlooked. With $2.06 billion in liquidity, Daqo is well-positioned to outlast smaller peers and capitalize on eventual demand recovery. The resolution of the Xinjiang Daqo legal dispute, which slashed potential liabilities by 99.8%, further strengthens its balance sheetDaqo New Energy Updates Legal Case^[1].

Conclusion

Daqo New Energy operates in a high-stakes environment where regulatory actions and market forces are in constant flux. While legal risks and operational headwinds are significant, the company's financial resilience and proactive adjustments to production underscore its capacity to endure. For investors, the key question is whether Daqo can leverage its liquidity and governance reforms to emerge stronger as the solar industry stabilizes. In the short term, caution is warranted, but the long-term outlook remains contingent on the success of government-led market corrections and Daqo's ability to navigate geopolitical crosscurrents.