Hidden Concerns of Hengdian Dongmo

Starting in 2023, Gan Tan Carbon has been conducting in-depth interpretations of Hengdian Dongci’s annual reports every year—always filled with admiration for this private enterprise evergreen standout:

2023—“Carbon-Exploring Annual Report | Hengdian Dongci: Solar became the largest revenue source, but its biggest drawback is that it’s too conservative”;

2024—“Insights into Financial Reports | Hengdian Dongci: The big brother among private firms—I’m called Qian Duoduo”;

2025—“With solar generally in losses, why can Hengdian Dongci still make big money? What other solar opportunities does he see?”.

Hengdian Dongci’s performance as an “excellent student” is truly commendable, and its image in the capital market is also strong—almost every year, it is the first photovoltaic company to disclose its annual report.

However, as with everything, there are exceptions. This year, after reading Hengdian Dongci’s annual report again, Gan Tan Carbon has started to worry about the future of this company’s solar business.

Hengdian Dongci headquarters; from the company website

01

In Q4 2025, performance already shows an inflection point

On March 28, Hengdian Dongci released its 2025 annual report: total operating revenue of 22.59B yuan, up 21.7%; total profit of 2.57B yuan, up 20.8%; and net profit attributable to shareholders of 1.85B yuan, up 1.34%. Overall, Hengdian Dongci’s performance is good—it is one of the few photovoltaic companies that can still make money right now. Its financial metrics, such as cash flow and the asset-liability ratio, are also healthy.

But if we look quarter by quarter: the company’s Q4 2025 performance is slightly weaker than the first three quarters; net profit was 399 million yuan, and net profit after non-recurring items was 295 million yuan.

The key is the future. Regarding Hengdian Dongci’s performance trajectory, investors have started to disagree.

From Hengdian Dongci’s 2025 annual report; Unit: ten-thousand yuan

As everyone knows, Hengdian Dongci’s business is divided into three segments: magnetic materials, solar, and lithium batteries. It is very rare that all three segments are profitable. Of these, magnetic materials has the highest gross margin, above 28%; the gross margins for solar and lithium battery businesses are around 15%.

Now the macro and industry environment surrounding the three business segments is also very clear. Hengdian Dongci has a solid position in the magnetic materials industry, and downstream demand in multiple application fields such as AI servers and new-energy vehicles is still growing rapidly; the lithium battery industry has already bottomed out and rebounded, with the industry’s overall profitability in the process of recovery.

Compared with peers, the market environment Hengdian Dongci operates in is special—which is also an important reason why it can remain profitable through the solar winter.

We all know that the entire solar industry has excess capacity, severe internal competition, and faces a complex external environment—especially a complex trade environment. Among these, the trade policy that dealt the biggest blow to Chinese photovoltaic companies comes from the United States: on June 6, 2024, the U.S. import duty exemption policy for certain solar products from four countries—Cambodia, Malaysia, Thailand, and Vietnam—expired. After that, the U.S. no longer excluded solar bifacial modules from tariffs and resumed charging tariffs on solar products from those four Southeast Asian countries.

This means that the solar capacity of those four Southeast Asian countries is no longer competitive in the international market and can hardly be exported to the U.S., a high-priced market.

It was around this time that Hengdian Dongci’s 3GW battery capacity in Indonesia started production. Indonesia is not affected by this trade policy.

In investor research notes disclosed on October 27, 2024, it was stated explicitly: “Indonesia’s capacity (2024) will begin formal production in late July, with a fairly smooth ramp-up; by late September, full production can be achieved. In the early stage, we mainly did sample certification; large-scale shipments are expected in November and December. We expect a profit margin of a few cents of a dollar per watt.”

Indonesia capacity became a money printer, and Hengdian Dongci became a “winner” of the China-U.S. trade war—one of the few photovoltaic companies that can continue to stay profitable.

At this point, it is also necessary to say that Hengdian Dongci’s ability to pick locations during its globalization process is extremely sharp-eyed.

02

Hengdian Dongci’s solar capacity utilization rate is over 100%!

From Hengdian Dongci’s 2025 annual report

Hengdian Dongci’s solar performance stands out because the company has deployed battery capacity in Indonesia. How profitable the company’s Indonesia business is can be observed from the following set of data in Hengdian Dongci’s 2025 annual report:

(1) By the end of 2025, Hengdian Dongci already has production capacity of 23GW of batteries and 21GW of modules;

(2) The company’s solar industry has deepened its differentiated strategy, demonstrating strong operational resilience in a counter-cycle period. In 2025, it achieved operating revenue of 14.3 billion yuan, and shipped 24.9GW of solar products, up 45%;

(3) In 2025, Hengdian Dongci’s solar product production volume was 26.27GW.

Hengdian Dongci did not disclose its 2025 capacity utilization rate. But based on the above data, the following conclusion can be drawn: Hengdian Dongci’s capacity utilization rate is over 100%.

Whether it is improved technology and processes, or whether Hengdian Dongci outsourced/contracted production to peers, in short, in 2025—when the battery and module segments were in lamentation across the industry—Hengdian Dongci’s battery and module businesses were still running at full production.

The article above mentioned battery capacity of 23GW, including 3GW capacity in Indonesia and 20GW domestic battery capacity.

Based on the 2025 solar market environment, it is extremely unlikely that domestic 20GW battery capacity could be profitable. No matter what technology route is used, in 2025, if its battery and module products want to make money domestically, in the Middle East, Europe, Africa, and Southeast Asia, it is almost impossible. However, Hengdian Dongci managed to do it.

So, despite the loud calls against overcompetition, Hengdian Dongci does not need to cut output to avoid losses. Likewise, Hengdian Dongci neither needs to, and in fact it has not participated in, output limits and price caps promoted by solar industry associations.

The reason Hengdian Dongci’s solar business is profitable—by the only explanation that is truly convincing—is instead market rumors: around Indonesia’s so-called “trade wash” (i.e., “washing out” the origin). In the solar industry, there is a professional term for this: “washing slabs” (washing the wafers).

Gan Tan Carbon specifically looked up how other industries explain “trade washing,” and the broad definition is as follows:

Trade washing is when a company seeks to evade trade barriers such as tariffs, quotas, anti-dumping/countervailing duties, etc., by routing goods originating from a country through a third country/region for transit, undergoing simple processing or relabeling, and then exporting to the target market after falsifying the country of origin. Its core logic is that the product is “swapped in its shell” but not its quality—using a third-country identity to get around restrictions.

A typical scenario is that amid current U.S.-China trade frictions, Chinese goods are “washed” through countries such as Vietnam, Mexico, and Malaysia, and then exported to the United States to avoid high tariffs.

Common trade-washing methods used in other industries include:

• Re-export trade: only changing packaging/adding labels, with no substantive processing (this happened in the early days as well, but in the solar industry it is no longer workable now).

• Simple processing: meeting the third country’s minimum value-add ratio (e.g., 30%) to obtain a certificate of origin (this is relatively common in the solar industry).

• False country of origin: fabricating documents and directly misusing a third country’s origin.

Doing this may earn money in the short term, but the risks are enormous. Because there is origin fraud involved, it falls under improper/gray operations. Once verified, it will face risks such as customs investigations, fines, anti-circumvention investigations, and more.

According to Gan Tan Carbon’s understanding, under the U.S.’s so-called “anti-circumvention” and other unequal trade policies, solar capacity in the four Southeast Asian countries has been fully wiped out. Many photovoltaic companies have chosen to invest and set up factories in places like Indonesia, Oman, Egypt, and Turkey. Some of them truly conduct production and processing locally, while many others actually involve trade washing.

Finding every possible way to make money from Americans is of course a great thing for those involved. But in today’s complex international trade environment, once such behavior is verified, consequences are very serious—and it will also impact the overall interests and reputation of China’s photovoltaic industry.

In fact, the U.S. government is already building a rigorous anti-circumvention network through a four-dimensional system of laws, administrative measures, technology, and international cooperation—focusing on origin fraud and re-export tax evasion.

03

Indonesia capacity gross margin as high as 130%?

Small companies are more likely to engage in such gray-area businesses, but listed companies participate in it far less, because compliance risk is extremely high. In this regard, Gan Tan Carbon previously wrote an article; see “Why is Hengdian Dongci’s Indonesia battery wafer business so hot?”

Are the above market rumors baseless? We can test whether they are true or false by examining Hengdian Dongci’s 2025 annual report.

(1) In 2025, the company’s domestic and overseas revenues each account for half—basically a 50:50 split.

(2) Hengdian Dongci’s gross margins for its three major businesses—solar, magnetic materials, and lithium batteries—in 2025 were 15.25%, 28.14%, and 15.38% respectively. Meanwhile, the company’s overseas sales gross margin is only 15.59%, which is quite close to the gross margins of the company’s solar and lithium battery businesses.

(3) Also considering that lithium batteries account for 27% of revenue in 2025, solar is the export mainstay. The overseas sales share will not be low—at least half.

(4) In the first half of 2024, conditions in the solar industry were not yet that bad. At that time, the gross margin of Hengdian Dongci’s solar products was only 11.86%. But in 2025, almost all solar companies have cost-and-price inversion. When the gross margin is negative, that has already become normal across the industry. Yet the company’s solar segment gross margin is higher than before.

Now other battery and module companies have not yet released annual reports. But judging from last year’s interim report data, Hengdian Dongci does show a different performance from its peers. In the company’s 2025 interim report, Hengdian Dongci’s solar business gross margin in the first half of 2025 was 16.70%.

(5) Hengdian Dongci has only 3GW of capacity in Indonesia, while it has 20GW of domestic capacity located in a loss-making region. Then how high would the gross margin of its Indonesia capacity have to be in order to pull the 23GW solar capacity gross margin to 16.7%? (Note: Hengdian Dongci’s designed capacity for PT NUSA SOLAR INDONESIA in Indonesia is 3.8GW.)

Assuming that the 23GW capacity gross margin is 16.75%, then we suppose that the gross margin of Hengdian Dongci’s domestic 20GW capacity is negative 1%. Under that assumption, what would the gross margin of the remaining 3GW of battery wafers be? 135.08%!

Is this kind of scenario reliable for Indonesia’s solar business?

The fact that the U.S. solar battery wafer capacity is in severe shortage is indisputable.

SEIA data shows that as of February 2026, the U.S. domestic solar module capacity is 65.1GW, but the battery wafer capacity is only 3.2GW.

In addition, according to publicly available information, U.S. battery wafer import costs are as follows:

• Southeast Asia compliant production (non-China materials): 0.10–0.12 USD/W, weekly average price 0.11 USD/W (OPIS latest as of March)

• China-produced battery wafers (FOB China): 0.0535–0.0581 USD/W, average price 0.0558 USD/W (OPIS as of March 24)

• China-produced battery wafer import cost (theoretical calculation, no practical meaning): 0.0558 USD/W + 117.41% anti-subsidy duty + 0.10 USD/W 232 tariff (U.S. Department of Commerce publicly announced duty rate), actual import cost is about 0.19–0.21 USD/W.

With the domestic solar environment being so poor, and Hengdian Dongci achieving such results, the only thing that can be said is that if the 3GW battery wafers can improve the performance of the entire solar segment so clearly, then the impact is too obvious.

Afterword

Indonesia capacity is so profitable. Not only investors are paying close attention— the whole solar industry is also envious of it. Regarding this project, Hengdian Dongci was very low-key in its 2025 annual report and mentioned it very little:

(1) The company’s subsidiary PT NUSA SOLAR INDONESIA is located in Indonesia, and the functional currency used in the financial statements is accounted for in U.S. dollars.

(2) On February 24, 2026, the U.S. Department of Commerce released its initial determination on countervailing duty (CVD). It found that crystalline silicon solar cells and modules from India, Indonesia, and Laos received unfair subsidies, and will impose additional CVD duties, and require customs to immediately collect cash deposits. PT NUSA SOLAR INDONESIA, a controlling-held company of the Company located in Indonesia, as of the date this financial report is issued, the final determination on CVD has not yet been released.

Gan Tan Carbon has no intention of verifying it. In fact, if you simply look up customs data on Indonesia battery wafer exports from provinces in China such as Sichuan (Yibin) and Zhejiang, it becomes clear at a glance.

The harsh reality right now is that the U.S. Department of Commerce has already started targeting Indonesia. How much will this affect Hengdian Dongci’s future performance? Is it only the 3GW Indonesia capacity that will be affected, or will it be the entire trade route from China’s solar industry to the U.S.?

Editor-in-charge and manuscript compilation: Zhen Tan

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