Chapter 1

Daqo New Energy: a low-cost commodity producer in a deep trough

Daqo New Energy makes one product — high-purity polysilicon, the raw material for solar panels — and sells it at whatever the market will pay. That single fact drives everything else. Revenue swung from $1.7 billion in 2021 to $4.6 billion in 2022 and back down to $665 million in 2025; a $1.8 billion profit in 2022 [1] became a $170 million loss in 2025 [2]. The company enters this report near the bottom of its own price cycle, selling below cost, but debt-free and sitting on roughly $2 billion of cash.

What the company does

Daqo produces polysilicon: the ultra-pure silicon that gets melted into ingots, sliced into wafers, and built into the cells and modules of solar panels. It is a commodity — chemically fungible, priced by global supply and demand, sold mostly to Chinese wafer makers under framework contracts that fix volumes but leave price floating at prevailing market rates [3], Operating Results — p.61"). There is no brand, no switching cost, and no pricing power; the only durable edge a producer can hold is cost.

That is where Daqo has staked its position. Its plants sit in Xinjiang and Inner Mongolia, next to cheap coal-fired electricity — the largest input in polysilicon — which the company credits with making it "one of the lowest cost producers around the globe" [4]. Nameplate capacity reached 305,000 metric tons by late 2024, up from 70,000 tons in 2019, after a decade of debt-and-cash-funded expansion [5].

The structure has two features a new reader should hold onto. First, the NYSE-listed entity, Daqo New Energy Corp., is a Cayman Islands holding company; its shares trade as American Depositary Shares, each representing five ordinary shares, and it files with the SEC as a foreign private issuer [6]. Second, the operating business is not wholly owned: the main subsidiary, Xinjiang Daqo, listed separately on Shanghai's STAR Market in July 2021, and the US holding company owns 72.7% of it [7], [8]. A meaningful slice of the profits, losses, and cash on the consolidated statements therefore belongs to minority holders of the A-share subsidiary — a wrinkle that matters for valuation and recurs later in this report.

The cycle is the business

Polysilicon is a boom-bust commodity, and the last five years delivered a textbook cycle. As solar demand outran supply in 2021, the average selling price ran from roughly $9 per kilogram to a peak above $37/kg in late 2022; a wave of new industry capacity then crushed it back below $5/kg through 2024.

Source: FY2024 20-F, quarterly external sales volume and ASP disclosure [9].

The price moved almost eight-fold peak to trough, and Daqo's income statement moved with it. At the top of the cycle in 2022, gross margin was 74.0% and net income reached $1.8 billion on $4.6 billion of revenue [10]. By 2024 the same business ran a negative 20.7% gross margin, and it stayed there in 2025 [11].

Source: revenue and net income attributable to Daqo New Energy Corp. shareholders, FY2025 20-F (2023–2025) [12], Operating Results — p.60") and FY2023 20-F (2021–2022) [13].

Selling below cost

The defining feature of the present moment is that the market price now sits below what it costs Daqo to make the product. Its full unit production cost was $6.78/kg in 2023, $6.44/kg in 2024, and $6.61/kg in 2025 [14]. The annual average selling price fell to $5.66/kg in 2024 and $5.25/kg in 2025 [15]. Even for a low-cost producer, selling at a loss on every kilogram is the state of play.

Source: FY2025 20-F, annual ASP [16] and production cost per kg [17].

Management's response has been to idle capacity rather than chase volume. Daqo produced 123,652 tons in 2025 against 305,000 tons of nameplate capacity — roughly 40% utilization — and sold 126,707 tons, down from a 200,002-ton peak in 2023 [18]. Running the plants harder would lower the per-unit cost through scale, but it would also add supply to a glutted market and burn more cash; the company has chosen restraint.

Source: FY2025 20-F, Operating Results, Revenue Analysis and Production Cost [19], Operating Results — p.60"), [20], [21].

The balance sheet is the floor

What lets Daqo choose restraint is a balance sheet built during the boom. At the end of 2025 it held $980.3 million of cash and restricted cash plus $1,035.6 million of fixed-term deposits [22] — roughly $2.0 billion of liquid assets — with no bank borrowings and current assets exceeding current liabilities by $2.1 billion [23]. Equity attributable to Daqo shareholders was $4.41 billion, alongside $1.51 billion of non-controlling interest in the listed subsidiary [24].

Source: FY2025 20-F, Liquidity and Capital Resources and Consolidated Balance Sheets [25], [26], Consolidated Balance Sheets — p.115").

The cushion is finite, though. Operating cash flow was negative $435 million in 2024, and while 2025 turned modestly positive at $50 million, the swing came from working capital and lower spending rather than a return to profit [27]. Capital returns have been paused: the board authorized $100 million buyback programs in 2024 and again in 2025 but had bought back none of the holding company's shares under them, choosing to conserve cash through the trough [28]. One nuance for later: much of the liquid balance sits inside the 72.7%-owned A-share subsidiary, so the holding company's own look-through claim on it is smaller than the headline.

Two forces outside the income statement

Two facts shape the case as much as price does. The first is a hard geographic constraint: Daqo's polysilicon is made partly in Xinjiang, and under the US Uyghur Forced Labor Prevention Act, goods made wholly or partly there are barred from US import unless proven free of forced labor. Xinjiang Daqo was added to the Act's entity list in June 2022, which effectively shuts Daqo's material out of the US solar supply chain [29]. The company sells to a global-but-mostly-Chinese customer base, so the direct hit is contained, but it caps the addressable market and is a live risk if Europe or others follow.

The second is a potential turn in the cycle. Management attributes the milder 7.3% ASP decline in 2025 — against 50.7% in 2024 — partly to China's "anti-involution" campaign, a policy push since mid-2025 to curb the ruinous overcapacity and below-cost competition across Chinese industry, polysilicon included [30]. Whether that translates into enforced supply discipline, and durable price recovery, is the swing factor for the whole case.

What the market makes of it

The stock has tracked the collapse in earnings. The ADS is down roughly 80% over five years and trades at about $12, near the low end of a 52-week range of roughly $12 to $37, giving a market capitalization near $0.8 billion. That values the equity at about 0.2 times the $4.4 billion of book value attributable to shareholders, and below the consolidated liquid assets on the balance sheet.

Source: market data, early July 2026 (as reported by market data providers); book value from FY2025 20-F [31].

A price this far below book and near the cash line is the market pricing in a long, uncertain trough — and, for some, the possibility that the balance sheet keeps eroding before prices recover. Neither the discount nor the cash is self-explaining; both need the cycle to be read carefully, which is what the rest of this report sets out to do.

The question this report examines

Daqo is a pure play on the polysilicon price, run by a low-cost producer with an unusually strong balance sheet, caught in the deepest down-cycle of its listed life. The central question this report examines is whether Daqo's position near the bottom of the industry cost curve, funded by a debt-free balance sheet holding roughly $2 billion in cash and deposits, can carry it through an oversupply deep enough that it now sells below production cost — and hold out until industry supply rationalizes and prices recover — before the trough erodes the very balance sheet that is the investment's floor. Everything that follows tests one side of that question: how good the cost position really is, how much cash the trough can consume, how the minority-owned structure splits the value, and what would signal the turn.