The recent announcement from Pylon Technologies, a leading player in the home energy storage sector, has created a significant stir in the industryOn May 19, the company disclosed that it received a notification indicating that its chairman, Wei Zaisheng, is under investigation and has been detained by the authorities in Yongqing CountyThis news sent shockwaves through the markets and raised questions about the future of the company.
Wei Zaisheng is a veteran figure within the "ZTE system," having served as Pylon's chairman since 2017. Under his leadership, the company made a remarkable entry into the stock market, achieving a historic milestone by becoming the first energy storage stock listed on China's STAR Market in 2020. Pylon soared to prominence, garnering a valuation that peaked at close to 90 billion yuan ($13.6 billion) in its early days.
However, the company has recently faced significant declines in both revenue and net profit throughout 2023 and into the first quarter of 2024. The sharp downturn has led to a growing concern regarding Pylon's capacity to navigate the tumultuous waters of the energy storage market.
During the period between 2019 and 2022, Pylon Technologies experienced explosive growth, focusing primarily on home energy storage systemsThe company's revenues surged dramatically, climbing from 820 million yuan in 2019 to over 6 billion yuan in 2022, reflecting year-on-year growth rates of 92.44%, 36.62%, 84.14%, and a staggering 191.55%. This impressive trajectory also extended to net profits, where the company saw an increase from 144 million yuan in 2019 to nearly 1.3 billion yuan by the end of 2022, demonstrating a net profit growth of 217.02% in its early years before peaking with a remarkable 302.53% increase.
However, this rapid expansion came to an abrupt halt in the second half of 2022. As the overseas home energy storage market began to cool, Pylon's growth also slowed dramatically, likened to hitting an "emergency brake." By 2023, the company reported a staggering 45.13% drop in revenue, with earnings falling to 3.299 billion yuan and net profit plummeting by nearly 60% to 516 million yuan.
The third and fourth quarters of 2023 were particularly grim for Pylon
Advertisements
In the third quarter, the company logged a loss of approximately 38 million yuan, which escalated to a remarkable 139 million yuan in the fourth quarterIn stark contrast, Pylon had reported profits of 381 million yuan and 628 million yuan respectively in the same quarters of 2022. Such a downturn in performance raised considerable concerns among investors and market analysts.
Furthermore, Pylon's profit margins have come under pressureIn 2023, the company's gross margin was 32.13%, a decrease of 2.57 percentage points compared to 2022. The combination of increased sales, management expenses, and R&D spending contributed to a net margin drop from 21.17% in 2022 to 15.63% in 2023, reflecting a decline of over 5 percentage points year-on-yearThe trend of declining performance has continued into 2024, as the company reported a catastrophic 79.05% fall in revenue during the first quarter of the year.
Amidst this downturn, Pylon Technologies is grappling with intense competition in the home energy storage sectorThe company, which was once enjoying a leading position, now faces formidable rivals such as Huawei, Sungrow, and GoodWe, all of which have extensive capabilities in photovoltaics, further complicating Pylon's attempts to reclaim market dominance.
In light of these challenges in the 2023 market, Pylon's financial reports indicated a blend of factors contributing to the decline in performanceThe company cited increased R&D and sales expenditures alongside adverse macroeconomic conditions leading to reduced subsidy incentives in various regionsAs a result, demand for home energy storage systems has significantly slowed compared to previous years, particularly as the energy crisis experienced in Europe in 2022 has relinquished its grip on the market.
In 2022, European energy prices skyrocketed, with electricity costs in countries like France and Germany spiking by up to 12 times, thus amplifying the appeal of home solar installations and energy storage solutions and driving up demand for Pylon's offerings
Advertisements
The company capitalized on this demand surge, recording historic highs in sales and performanceHowever, the landscape has since changed; decreasing industrial energy demand and improvements in the natural gas market have collectively resulted in a slowdown for home energy storageAs distributors accelerate inventory depletion in 2023, Pylon's shipment volumes have begun to diminish.
The competitive environment Pylon once thrived in has now shifted dramatically, and as a prominent player in the "ZTE system" in the new energy space, how Pylon recalibrates its efforts remains to be seenAs of the first quarter of this year, the controlling shareholder, ZTE Communications Co., held a 24.61% stake in Pylon, making it the largest stakeholder.
Transitioning from its early trajectory where Pylon's core offerings revolved around backup power solutions for ZTE, the company shifted its focus toward the lithium battery storage market starting in 2013. Leveraging ZTE's expansive channel resources, Pylon made rapid inroads into the European home energy storage market, achieving remarkable rankings—including third globally in shipments in 2019, second in 2021, and first by 2022. Yet, its early advantages are gradually eroding.
Of note is the fact that the channels for home energy storage and photovoltaic systems overlap significantlyPlayers like Huawei and Sungrow possess substantial channel advantages in overseas markets, allowing them to swiftly enter the home energy storage sectorBy 2021, Huawei had already captured third place among home energy storage providers globally, commanding a market share of 9%. The landscape in 2023 has witnessed a reshuffle, leaving Pylon in seventh place among leading Chinese home energy storage brands, surpassed by established entities like Huawei Digital Energy and others.
Amid these headwinds in the global home energy storage market, Pylon has pivoted its strategy in 2023, seeking to expand into the domestic market by shifting its focus towards industrial and commercial energy storage solutions
Advertisements
However, this new direction is not without its challengesChina's energy storage sector is fiercely competitive, with lower product margins, and venturing into this domain could exacerbate Pylon's profitability concerns.
In 2023, foreign revenue accounted for an overwhelming 93.57% of Pylon's total income, amounting to 3.087 billion yuan with a high gross margin of 32.84%. Conversely, the domestic segment registered just 182 million yuan in revenue with a measly gross margin of 9.64%. Competing firms in the energy storage domain have historically faced markedly better margins for overseas business compared to domestic ones.
Moreover, the stark differences between home energy storage and industrial and commercial energy storage markets mean that Pylon may confront substantial hurdlesThe home energy storage market primarily targets individual consumers, with a focus on technological certification and distribution networksOn the other hand, the industrial sector presents diverse application scenarios, with heightened emphasis on safety, stability, and return on investmentConsequently, providers in this realm must possess robust technical strengths and operational capabilities.
Pylon Technologies has developed its own battery cells, modules, and energy management systems, giving it a certain edge regarding cost controlHowever, whether it can make significant inroads in client acquisition or service operations remains contingent on market validationThis competitive landscape is further complicated by emerging contenders from the industrial and commercial storage area, including players such as Singular Energy, Huazhi Energy, and others.
Looking ahead to 2024, renowned companies like Huawei Digital Energy and BYD are ramping up investments in industrial storage, thus intensifying competitionThese firms are capitalizing on their brand reputation, technological prowess, and established market channels to rapidly capture market share.
Overall, despite the significant challenges Pylon Technologies faces, the global energy storage sector still holds considerable opportunities for growth
Advertisements
Advertisements