Daqo New Energy (DQ) Q3 2026 earnings review
Daqo's solar shipments triple, but low prices keep it unprofitable
Daqo New Energy is selling its solar material again and generating cash, even though every kilogram still sells at a loss. Revenue more than tripled from last quarter to $194 million as chief executive Xiang Xu abandoned an earlier sales freeze and shipped nearly 47,000 metric tons of polysilicon. Running the factories harder pushed cash production costs down to a record low of $4.23 per kilogram and brought in $61 million of operating cash by our math.
| Revenue | $194.2M +210% from last quarter, -21% from a year ago |
|---|---|
| Polysilicon cash cost | $4.23/kg record low, down 7.4% from last quarter |
| Net loss per share (ADS) | -$0.78 -$1.20 last quarter |
| Full-year production outlook | Raised 10,000 MT middle of the range: 180,000 MT (+46%) |
⚖️ Verdict: 🟢 Bullish
The story got better because resuming shipments and cutting unit costs stopped the cash drain and narrowed losses. Chinese government rules against below-cost sales also lifted market prices by about a third from their summer lows, which should help fourth-quarter orders. One caution: Daqo produced 26% more than its own plan pointed to and added to its inventory pile, while pre-July contracts kept its realized selling price below cash cost.
The question now is whether higher market prices and planned fourth-quarter output cuts will finally return the company to gross profit. If late-summer spot prices hold and Daqo trims utilization as planned, prices will clear the $5.37 per kilogram total cost; if buyers resist or Daqo overproduces again, inventory write-downs will continue. Fourth-quarter average selling prices and shipment volumes will decide it.
🐂 Bull Case
Market Pricing Tripled Sales Volume
Earlier this year, Daqo New Energy held back shipments because market prices for polysilicon, the raw material for solar panels, fell below production cost. In June, chief executive Xiang Xu shifted to "a more market-oriented sales and pricing strategy" to move product again.
That shift worked across the second and third quarters. Sales volume jumped from 4,482 metric tons (MT) in the first quarter to 15,190 MT in the second, and reached 46,910 MT this quarter. Consequently, revenue more than tripled from last quarter to $194.2 million, up from $62.7 million. Moving volume again eases the severe sales freeze from earlier in the year, because the solar supplier is once again clearing its factory output and bringing in customer orders.
What to watch: fourth-quarter sales volume against the 35,000 to 45,000 MT production target. Shipping more than it produces would show that the Chinese manufacturer is finally shrinking its stockpiles.
Unit Costs Reached Record Lows
Daqo aims to outlast solar rivals by running the lowest-cost plants in the industry. In the third quarter, the company ramped nameplate capacity utilization to about 70%, up from 57% in the prior quarter, spreading fixed factory overhead across more output.
Total production cost and cash cost (which excludes equipment depreciation) fell 9.7% and 7.4% from last quarter, "reaching new record lows of $5.37/kg and $4.23/kg, respectively, reflecting our continued improvements in manufacturing efficiency and cost control," Xu said. Lower unit costs and smaller inventory write-downs reduced the cost of making products by 100.8 percentage points of revenue from last quarter. Gross margin improved from negative 132.0% to negative 31.2%, and operating loss narrowed from $98.1 million to $78.6 million.
What to watch: unit total production cost in the fourth quarter. A planned drop in factory output could push per-kilogram depreciation higher and reverse these efficiency gains.
Operating Cash Flow Turned Positive
Daqo relies on its debt-free balance sheet to survive a multi-year solar downturn. During the first half of 2026, hoarding inventory burned $276.2 million in operating cash. Resuming normal shipments in the third quarter reversed that drain.
- Third-quarter operating cash flow: $61.2 million inflow by our math, narrowing nine-month outflow to $215.0 million
- Third-quarter free cash flow: $31.2 million inflow by our math, after $30.0 million in factory spending
- Cash, bank notes, deposits and short-term investments: $2.06 billion, up $140 million from last quarter
- Bank debt: zero
Generating cash while reporting a $52.9 million net loss proves that higher shipment volumes and customer prepayments can protect the treasury even at depressed prices.
What to watch: full-year operating cash flow in the fourth-quarter report. Another quarter of cash generation would confirm that the balance sheet is no longer shrinking.
🐻 Bear Case
Selling Prices Still Sit Below Cash Cost
Chinese regulators stepped in this summer to stop solar suppliers from selling below cost, lifting market quotes for N-type polysilicon (a higher-grade material for efficient solar cells) from RMB 30.5–33 per kilogram in the second quarter to RMB 40–43 by the end of September.
Yet Daqo's average selling price (ASP) rose only 2.0% from last quarter to $4.12 per kilogram "because Q3 shipments fulfilled orders signed before late July," Xu explained. At $4.12 per kilogram, the company sold its product below both its $4.23 cash cost and its $5.37 total cost. That gap forced another $30.9 million inventory write-down, following a $55.7 million charge last quarter. Even excluding that write-down, gross margin was negative 15.3% by our math.
What to watch: fourth-quarter average selling price. Because late-quarter market prices reached roughly $5.60 to $6.00 per kilogram, realized prices must rise above $5.37 for Daqo to earn a gross profit.
Daqo Built Inventory Despite Industry Gluts
Xu noted that "downstream players continued to hold polysilicon inventories and largely limited their purchases to immediate operational needs, keeping overall sector trading volumes low." To help clear the glut, he said the company is "evaluating a reduction in our near-term utilization rate to better align our production with market demand and support the orderly destocking of polysilicon inventories."
Yet Daqo's own actions in the third quarter went the other way. The polysilicon maker produced 53,469 MT, beating its 40,000 to 45,000 MT plan by 25.8% at the middle of the range and outpacing the 46,910 MT it sold. By our math, that added 6,559 MT to its warehouses, pushing inventory value up 7.9% from last quarter to $392.1 million, more than triple the $121.4 million held a year ago.
What to watch: fourth-quarter production volume against the 35,000 to 45,000 MT plan. Beating its own output target for a sixth straight quarter would keep adding to the industry stockpile.
👓 Other Themes
Government Rules Enforce Pricing Floors
Chinese authorities moved from verbal warnings to formal price rules in the third quarter. Following market regulator price compliance guidelines on July 31 and an August industry pledge to halt below-cost sales, the National Development and Reform Commission issued cost accounting rules on September 3 to curb low-price competition. These rules helped lift spot polysilicon prices by roughly a third from their second-quarter lows.
AI Data Center Power Equipment Venture
To reduce its reliance on solar cycles, Daqo is entering the AI data center (AIDC) power market alongside its affiliate, Daqo Group. Following a June 3 investment agreement "to establish a manufacturing base for the R&D, manufacturing, and sale of next-generation energy solutions and related equipment for AIDCs", research and development spending rose 75.5% from last quarter to $2.7 million.
💲 Other KPIs
Customer prepayments for future orders more than tripled from $43.2 million last quarter and rosenearly sixfold from $24.2 million a year ago. Short-term advances from customers represent cash paid upfront before polysilicon is shipped, so this jump boosted third-quarter operating cash flow and points to active fourth-quarter order deliveries.
Bills and bank notes due from customers more than doubled from $72.0 million in the second quarter and rose 2.9% from $157.0 million a year ago. Virtually all of the balance consists of $161.5 million in bank notes maturing within six months, which the solar group counts inside its $2.06 billion pool of liquid assets.
Overhead and selling costs edged up 2.7% from $15.8 million last quarter as shipment volumes tripled, but fell 49.6% from $32.3 million a year ago. The drop from last year happened because the polysilicon producer recorded zero share-based compensation this quarter, compared with $18.6 million in the third quarter of 2025.
🔮 Guidance
New. The plan calls for 40,000 MT at the middle of the range, down 25.2% from the dritten quarter's 53,469 MT and down 5.2% from a year ago. Management is considering lower factory utilization to help clear industry inventory. However, Daqo has beaten its quarterly output plan for five straight quarters; if the prior four-quarter average beat of 10.7% holds, fourth-quarter output would reach about 44,264 MT by our math.
Raised. The middle of the full-year target moved up by 10,000 MT to 180,000 MT, which represents 45.6% growth from 2025. Across four quarters of outlooks for 2026, the middle of the range held flat once and then rose twice: +0 MT, +15,000 MT, and +10,000 MT. After 140,546 MT produced in the first nine months, the full-year midpoint leaves 39,454 MT for the fourth quarter by our math.
❓ Key Questions
What selling price are new fourth-quarter orders booking at?
Third-quarter prices lagged the market at $4.12 per kilogram because shipments filled pre-July orders. Knowing whether current orders are booking near the RMB 40–43 per kilogram spot range will tell if fourth-quarter gross margin can turn positive.
Why did third-quarter output beat the plan by 26%?
Management warned of high industry stockpiles and pledged discipline, yet produced 53,469 MT against a 40,000–45,000 MT plan. Investors need to know why utilization jumped to 70% before trusting the fourth-quarter cut.
How much capital will the AI data center venture require?
Research spending rose to $2.7 million for the new power equipment venture with affiliate Daqo Group. Management has not disclosed total capital commitments, ownership splits, or when the manufacturing base will generate revenue.
When will Xinjiang Daqo stop buying back minority shares?
Operating subsidiary Xinjiang Daqo spent $7.8 million buying shares from minority holders this year while the parent company paused its own buybacks. Clarifying capital allocation priorities between parent and subsidiary shareholders matters while earnings remain negative.