Longi's Loss Warning: Is the Recovery Narrative Already Priced In?

The market is pricing in a recovery that the financials have yet to deliver. Longi Green Energy has warned of a full-year net loss of about 6 billion yuan to 6.5 billion yuan for 2025, a notable improvement from the 8.6 billion-yuan deficit in 2024. Yet this is still a massive loss, and it arrives against a backdrop of industry-wide distress. Even as the sector shows signs of stabilization, its collective pain remains acute. Industry-wide losses narrowed by 46.7% quarter-on-quarter in the third quarter, but they still reached 6.422 billion yuan for that period.

This sets up a clear disconnect. The prevailing narrative, fueled by government intervention and analyst optimism, is one of an impending upcycle. Bloomberg Intelligence sees Longi poised for an earnings recovery this year as price competition eases and overcapacity improves. Chairman Zhong Baoshen has expressed confidence in returning to breakeven. Yet the stock's recent performance tells a different story. Despite the loss warning, Longi's shares are up 23.55% over the last 12 months and have gained 5.34% in the last four weeks.

The thesis here is one of expectations versus reality. The market is clearly pricing in the recovery narrative, rewarding the company for its cost-cutting measures and its strategic shift away from expensive silver. This creates a potential risk/reward asymmetry. The stock's rally suggests much of the positive outlook is already reflected in the price. If the path to profitability proves longer or more arduous than anticipated, the current valuation may offer little margin for error. For now, sentiment is optimistic, but the bottom line remains stubbornly in the red.

The Cost Pressure: Silver's Surge and the Industry's Response

The primary driver of the solar industry's slump is a surge in the price of silver, a critical but costly component. The metal's price has tripled over the past year, with its share of the per-watt module cost soaring from 3% in 2023 to over 17% in October. This explosive increase has squeezed margins across the sector, making the current recovery narrative particularly fragile.

In response, Longi is executing a key mitigation strategy. The company plans to begin mass production using base metals to replace silver in its solar cells starting in the second quarter of 2026. This move is part of a broader industry trend, with peers like JinkoSolar and Shanghai Aiko Solar also pursuing silver-free or low-silver technologies. The goal is clear: to further lower production costs in the face of unsustainable input price inflation.

The effectiveness of this solution, however, is a critical but not guaranteed fix. The substitution process is technically challenging, especially for the dominant TOPCon cell technology, which uses high-temperature processes that are resistant to copper. Longi's advantage lies in its production of back-contact (BC) cells, which the company notes makes replacing silver with base metals easier. This technological edge could allow Longi to implement the change more smoothly than competitors, potentially giving it a cost and reliability advantage in 2026.

Yet, the path is fraught with risk. Base metals like copper are not a perfect substitute; they can lead to higher assembly costs and raise concerns over long-term reliability. The industry's success in scaling this shift will determine whether cost pressures ease in the coming year. For now, the plan is a necessary hedge against a volatile input, but its execution will be a major test for Longi's path to profitability.

Valuation and the Priced-In Expectation

The market's bet on Longi's recovery is now written into the stock price. With a market cap of $20.37 billion USD, the company trades at a trailing price-to-earnings ratio of 45.3. This is a valuation typically reserved for companies with strong growth prospects, not one posting a massive net loss. The P/E ratio, which was negative just a year ago, reflects a market that is pricing in a significant future turnaround.

This optimism is starkly at odds with the near-term financial reality. The company has warned of a full-year net loss of about 6 billion yuan to 6.5 billion yuan for 2025. Even as the sector shows signs of stabilization, Longi's bottom line remains deeply in the red. The stock's recent rally-up 23.55% over the last 12 months-suggests the market is looking past this year's losses and betting heavily on the recovery narrative for 2026 and beyond.

Analyst projections, however, offer a more cautious counterpoint. According to Trading Economics, the stock is forecast to decline to 17.11 yuan within a year. This implies a market that is not fully convinced the recovery will be smooth or swift. The divergence between the stock's current price and this near-term forecast highlights the tension between the priced-in optimism and the persistent overcapacity and execution risks in the industry.

The bottom line is one of asymmetry. The current valuation appears to already reflect the best-case scenario: a successful silver substitution, easing competition, and a return to profitability. If the path proves longer or more arduous than anticipated-due to technical hurdles in the base-metal shift or a slower-than-expected industry recovery-the stock offers little margin for error. For now, the market is paying for perfection, leaving investors exposed if the reality falls short.

Catalysts and Risks: Testing the Expectations Gap

The thesis that the slump is priced in hinges on a few key catalysts and risks. The primary catalyst is the successful ramp of base-metal production in the second quarter of 2026. Longi plans to begin mass production using base metals to replace silver, a move that could help further lower the costs of solar modules. The timing is critical: the impact on cost structures and margins would first be visible in the third and fourth quarters of this year. For the recovery narrative to hold, this technological shift must not only start on schedule but also translate into tangible, sustained cost savings without introducing new reliability or assembly issues.

The primary risk, however, is that this catalyst is overshadowed by persistent overcapacity. While new manufacturing capacity is down, the industry's total capacity remains roughly double what the global market needs. This creates a powerful headwind for prices and margins. As one industry official noted, the construction of new manufacturing capacity is down, but future demand is uncertain. Analysts project China's solar demand to range between 185 GW and 275 GW in 2026, a significant drop from this year's record high. If demand growth falters, the industry's struggle to shed excess capacity could continue, leading to further price erosion that could negate any cost savings from the silver substitution.

A key watchpoint is the trajectory of silver prices. A sustained retreat below $50 per ounce would significantly ease pressure on input costs and validate the urgency of the substitution strategy. Conversely, new highs-silver recently hit an all-time high of $93.77 an ounce-would underscore the volatility and cost inflation that the industry is trying to escape. The market has already priced in the substitution as a solution; the risk is that silver's price action remains volatile, keeping cost pressures elevated even as production ramps.

The asymmetry of risk is clear. The bullish case assumes the base-metal shift succeeds and overcapacity resolves, leading to a margin recovery. The bearish case assumes overcapacity persists, demand softens, and the substitution fails to deliver the promised savings quickly enough. Given that the stock's valuation already reflects a successful turnaround, the downside appears more constrained than the upside. The catalysts are specific and measurable, but they are also dependent on execution and external demand, which remain uncertain. For now, the market is betting on the catalysts; the risks are the ones that could break the priced-in optimism.