Daqo New Energy's Q2 2025 Earnings Call: Contradictions in Pricing, Inventory, and Regulatory Strategies Emerge

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 26, 2025

Financials Results

• Revenue: $75.2M, down from $123.9M in Q1 2025 and $219.9M in Q2 2024
• EPS: Loss of $1.14 per basic ADS, vs loss of $1.07 in Q1 2025 and $1.81 in Q2 2024
• Gross Margin: -108%, compared to -65.8% in Q1 2025 and -2% in Q2 2024
• Operating Margin: -153%, compared to -92% in Q1 2025 and -89% in Q2 2024

Guidance:

- Q3 2025 polysilicon production expected at 27,000–30,000 MT.- FY2025 production outlook: 110,000–130,000 MT.- Near-term utilization around 30–35%, adjusted to demand/policy.- Will sell above production cost and work to reduce inventory.- Expect positive cash margins excluding idle-facility depreciation.- Cash cost trending down; currently ~$5/kg with further improvement expected.- $100M share repurchase authorized through end of next year; pace market-dependent.- Using futures to hedge price risk.

Business Commentary:

Financial Performance and Market Conditions:* - Daqo New Energy reported a gross loss of $81.4 million in Q2 2025, with a negative gross margin of 108%. - The company recorded a decrease in revenues to $75.2 million from $123.9 million in Q1, amid a decline in sales volume. - This financial performance was affected by overcapacity and low market prices, which drove most solar poly production companies into losses.

• Capacity and Production Volumes:
• Daqo New Energy operated at a reduced utilization rate of approximately 34% during Q2, which aligns with their total production volume of 29,004 metric tons.
• The company guided for a total production volume range of 110,000 to 130,000 metric tons for the full year 2025.

• The reduced utilization and production volume were a response to challenging market conditions and efforts to conserve cash.

• Cost Management and Depreciation:

• Daqo's cash cost per kilogram decreased by 4% to $5.4, benefiting from reduced energy consumption and lower metal costs.
• Average unit production cost dropped by 4% to 7.26 USD per kilogram, reflecting lower unit depreciation costs from higher production.

• Noncash depreciation expenses due to idle facilities were approximately $1.33 per kilogram.

• Government Initiatives and Market Outlook:

• Chinese authorities intensified efforts to address irrational competition and initiated policies to phase out excess production capacity in the solar PV sector.
• Poly sales prices rebounded in July, supported by increased costs and simultaneous downstream product price increases.
• Daqo New Energy anticipates a healthier industry due to government regulations and expects solar power to remain a key driver of global energy transitions.

  Sentiment Analysis:

  • Management reported operating and net losses and a -108% gross margin, but highlighted $2.06B in cash/near-cash and no debt. They expect Q3 production of 27–30k MT and FY25 of 110–130k MT. Prices have rebounded; they will sell above production cost and aim to reduce inventory, with positive cash margins ex depreciation. Utilization to remain ~30–35% near term and adjust with policy/demand.

  Q&A:

  • Question from W. L. Hon (JPMorgan): Update on consolidation policy developments and how to think about polysilicon prices over the next three months?
  • Response: China is curbing below-cost selling and exploring a buyout/SPV for outdated capacity; prices have risen (incl. futures), with outlook dependent on policy rollout and likely pass-through from higher module tender prices.
  • Question from Matt Inger (ROTH Capital Partners): How sustainable are higher prices under anti‑dumping initiatives, and what is the outlook for industry volumes and inventory normalization?
  • Response: Selling below cash cost is deemed unsustainable; expect ~100–110k MT/month industry production aligned with demand, supporting healthier pricing and aiding inventory normalization.
  • Question from Matt Inger (ROTH Capital Partners): Update on acquiring surplus capacity and potential near-term actions?
  • Response: Industry, power companies, and regulators are working toward a buyout of outdated capacity; management is optimistic on progress in coming weeks/months to restore industry health.
  • Question from Alan Lau (Jefferies): Rationale, timing, and pace for the new $100M share repurchase program?
  • Response: Authorized $100M through end of next year to signal confidence and a potential industry turning point; execution pace will depend on market conditions.
  • Question from Alan Lau (Jefferies): Will you reduce A‑share holdings to fund buybacks given A‑share price is above IPO?
  • Response: It’s under consideration; priority is using existing offshore cash, but A‑share sales remain an option.
  • Question from Mengwen Wang (Goldman Sachs): How is production cost defined for regulated pricing, and how will you balance price versus inventory?
  • Response: Industry pricing should be above average production cost (mid‑RMB 40s/kg); Daqo will manage utilization and use futures to hedge, pacing sales to avoid inventory build pending policy clarity.
  • Question from Zihui Hu (CICC): Why was Q2 sales volume low, what are future utilization plans, and how else can costs be reduced?
  • Response: Sales were held back due to below-cost pricing; utilization ~30–35% pending demand/policy; costs are falling via efficiency and lower energy, with cash cost around $5/kg and improving.
  • Question from Gordon Johnson (GLJ Research): Did you intentionally hold back sales and will you sell more in H2; current price levels and margin outlook?
  • Response: Yes; will sell above cost as prices improve and reduce inventory. RMB quotes include 13% VAT; ex‑VAT prices ~$5.8/kg. Expect positive cash margin ex depreciation, while GAAP gross margin is pressured by idle depreciation.