For the second time this year, a U.S.-traded Chinese solar manufacturer has agreed to go private in a sale to its CEO. ReneSola (NYSE:SOL) will sell its solar manufacturing capacity and liabilities to CEO Xianshou Li and turn its focus to project development. 

This follows Trina Solar's move to go private, betting that there was more upside than the market was currently pricing in. In ReneSola's case, the buyout is a little more complicated than the CEO betting on a brighter future. 

Solar panels with transmission lines in the background.

Image source: Getty Images.

A money-losing operation is gone

The manufacturing operation that's being sold to Li isn't exactly a success story in solar energy. In 2016, the company sold 1.2 GW of solar modules to outside customers and lost $34.7 million in the process. By the fourth quarter, gross margin had fallen to just 2.1%. 

While competitors like Canadian Solar (NASDAQ:CSIQ) and JinkoSolar (NYSE:JKS) were expanding and improving manufacturing technology, ReneSola was just trying to stay alive. That's the challenge in solar manufacturing -- if you can't keep up with the latest technology, there's nowhere to turn. Today, the technology that provided the lowest-cost product just a few years ago is becoming obsolete. 

To give an idea of how dire ReneSola's condition has gotten, it just reported a net loss of $31.5 million on revenue of $151.6 million in the second quarter of 2017. It's only a matter of time before the company would have gone bankrupt, which is driving the buyout. 

The future is very different for ReneSola

While ReneSola's manufacturing business is being taken over and will have to be either refinanced or sold for scraps, the project development business will live on. In a release on Tuesday, management said it expects third-quarter revenue to be $40 million to $45 million, with gross margins in the range of 15% to 20% after connecting 20 MW to 30 MW in the quarter. 

The big question is whether or not ReneSola can survive as a small solar developer. In the U.S., China, and India, scale has become important for solar developers as manufacturers, utilities, and industrial companies have moved into the development business. I'm not sure ReneSola has anything to offer that others don't, and with margins being squeezed in the solar development business, I wouldn't count on this company making much money in the next few years. 

Will another manufacturer bite the dust?

The bigger question for Canadian Solar, JinkoSolar, or any other solar manufacturer is whether or not Li will be able to keep ReneSola's manufacturing operations going. The company produced as much as 1.5 GW of solar modules in 2015; if that kind of capacity came out of the market, it would be an incremental positive for the players that are left. Given the pricing pressure on solar modules, manufacturers will take any easing of competitive pressures they can get. 

The demise of some of the industry's weakest companies is inevitable, and we may be seeing the once-promising ReneSola slowly succumb to the losses that have plagued it for the last year.