Trina Solar: First Solar Won’t Be Low-Cost Leader for Long

By Ucilia Wang

For Trina Solar (TSL), it won't be long before its solar panel manufacturing costs will fall enough to become comparable to the industry low-cost leader, First Solar (FSLR).

"Next year, our cost reduction roadmap will allow us to compete with First Solar in the balance of system level, so that module wise we will compete with them some time next year," said Terry Wang, Trina's chief financial officer, in a conference call to discuss the company's earnings late Monday.

Wang's comment came as the company returned to profit in the second quarter. Trina posted a net income of $18.9 million, or 71 cents per American depositary share, on $150 million in revenue. The Chinese company posted a loss of $10.6 million, or 42 cents per share, on a revenue of $132.1 million for the first quarter; and a net income of $17.1 million, or 68 cents per share, on a revenue of $204.2 million for the second quarter of 2008.

Trina posted much better quarterly financial figures than other Chinese solar companies over the past week. JA Solar (JASO) and ReneSola (SOL) delivered mixed results while LDK Solar (LDK) performed poorly.

Trina makes solar panels using its own silicon cells. Silicon solar panels dominate the market today. Tempe, Ariz.-based First Solar makes cadmium-telluride panels and has grown quickly to become one of the top 10 (and only non-silicon) panel makers in the world.

First Solar has long prided itself on being able to keep its manufacturing costs low. The company lowered its production costs to $0.87 per watt in the second quarter from $0.93 per watt in the first quarter of this year. It expects to reach $0.65 to $0.70 per watt by 2012.

Its silicon competitors, in general, aren't able to compete on the pricing alone. Silicon panels are able to convert more of the sunlight that strikes them into electricity than cadmium-telluride panels. As a result, silicon panels are more suitable for rooftop installations, where space is a constraint.

First Solar has enjoyed a cost advantage partly because the price of silicon has historically been high. But silicon pricing has dropped significantly, as much as 50 percent for long-term contracts, over the past year.

The financial market crisis has made it difficult for developers to line up financing for solar power projects. Spain, which added a few gigawatts of solar in 2008 alone, now has a 500-megawatt cap for 2009. All these forces have led to an oversupply of silicon panels.

To fend off the silicon competitors, particularly those from China, First Solar plans to give out rebates to customers who do business in Germany, its largest market. The customers would get the rebates after an installation is complete.

Comments

[jbde:]

As I have stated in prior posts - FSLR has 2 problems, cost reduction of raw materials and higher cost of installation.

As you note Si costs are going down and can continue. FSLR input costs have reached bottom and only efficiencies of production remain - and same production efficiencies are afforded to Si cell and module makers.

Soon installation costs will dominate - land [roof] area, support frames and module frames and glass not to mention transportation costs of more materials. Since thinfilm is less efficient, it requires more of all.

FSLR's competitve advantage is slipping away - it's just a matter of time.

What of CSIQ - it seems to have been only p-si module make to have posted real profits???????

Aug 19 08:43 AM

[Zenfar:]

SPWRA is doing well along with CSIQ.

Aug 19 09:59 AM

[jerrydd:]

I doubt Si cells can ever be made under $1.50/wt from wafers. So I have a hard problem with the author's reasoning. The only reason wafers are cheap now is low demand, subsidies are cutting back as they should as PV has been too high for 3 decades. But high demand and gov subsidies have kept prices high.

Now we are coming to the age of low cost, economically viable solar PV where at about $2/wt retail for home use are viable. Why is the land and transmission costs are zero and no corporate profits and homeowner save much more as their electric costs are much higher than utilities pay. This lower cost and higher return for home, small businesses means payback is 3-4x's faster.

While TF is less eff than Si it's lower costs easily make them better E/$. As even with TF you only need under 1/'2 of the buildings roof to supply it with the power needed average Most need less than 1/4 the roof area..

Now the panel maker that does panels $2wt retail in a kit with an inverter, mountings for a plug and play unit for under $4wt will be very well rewarded.

Next stage is solar panels that replace roofing cutting installed costs to $2-3wt in new buildings from the roofing savings.

At $2/wt retail in most countries where gas/diesel generators are used, PV will be cost effective.

Now if oil paid it's full cost instead of the huge subsidies it gets, $1.50/gal+, You could fuel your car with PV at a lower cost.

So I only see good things at these lower prices as the market is then very large. The future is not solar farms far from the users but on homes, small businesses and every place without a grid and many that are on a grid.

Aug 19 10:01 AM

[Road Runner:]

FSLR's business model of hugely beating everyone else on system price is over, permanently. FSLR will still be very profitable, but its high flying P/E, awarded because it was far cheaper than everyone else, has to come down, and with it, its stock price. It can no longer be one of the darlings of Wall Street.

Aug 19 10:48 AM

[zawy:]

FSLR production has been increasing 150% yoy for the past 7 years and their P/E is 19. There's nothing "high-flying" about that. FSLR will also continue to decrease it manufacturing costs $/Wp at a similar pace, so it's questionable if TSL can catch up even if the silicon glut continues. TSL's $0.73/Wp not counting the silicon costs (the inaudible part in the transcript) is only a little lower than FSLR's $0.83/Wp total cost. As the dollar decreases in value to FSLR's advantage and the RMB increases to a fair value to Chinese solars' disadvantage, FSLR should stave off any Chinese solar threat for years to come. This assumes they can acquire the tellurium, which should be possible through 2012 as long as China drives higher copper production. Don't forget FSLR has nearly twice the profit margin as any Chinese solar even in the silicon glut so that FSLR can greatly lower costs in the event any unforeseen threat arises.

Aug 19 05:38 PM

[Road Runner:]

As FSLR keeps decreasing its module cost, another cost of a solar system becomes dominate - installation cost (with transportation cost). Right now installation cost is about 50% of the cost of a solar system. In the future, it will be more. Installation cost is very sensitive to how large the installed system is. With a FSLR system seemingly struck at about 10.9% efficient, and silicon solar systems at over 20%, silicon systems have a big advantage in installation cost over FSLR systems.

Sunpower, the leader in silicon-base efficiency, currently sells modules of 22.5% efficient. They just announced that by 2014, their efficiency will be 25%. It seems like silicon based systems are progressively improving efficiency, while thin-film efficiency is somewhat stuck around 10%.

Aug 19 05:57 PM

[tc1:]

Road Runner, you've written several posts bringing up the very interesting and undoubtedly important issue of installation costs.

I'm curious, though, how you square the installation-cost issue with the fact that one of the biggest installers of residential solar panels in our sunny state of California -- private company Solar City-- evidently installs as their panels of choice none other than First Solar's panels.

I would surmise that, at least for the near- to medium-term future, First Solar's price benefits, not to mention other virtues (like their taking eco-responsibility for the full life-cycle of their panels) significantly outweigh the installation costs.

Aug 19 10:40 PM

[zawy:]

Road runner, yes, I left out the installation costs, but FSLR is so far ahead in $/W costs, that even with that disadvantage, they are able to stay ahead and will continue to do so for the currency, profit margin, and silicon glut reasons I mentioned. Silicon will stay ahead in efficiency, but it is not clear that silicon will have greater gains in terms of percent of current efficiency. Therefore it is not clear that silicon margins have more to look forward to in the future if we exclude installation costs. FSLR increased efficiency 5% this last quarter. You are clever to point out that as $/W decreases, installation costs become more important, but this assumes installation costs will not decrease as fast as efficiency. FSLR is currently targeting the largest installations which is to their disadvantage when it comes to installation costs. For a residential installation, the cost of contractors just showing up with equipment will be the same no matter how big the job. So installation in smaller jobs may be only be about 25% more for FSLR if they have to install 50% more square feet. The >20% efficiencies you cite are very expensive and the bulk of sales in silicon are <17%. The P/E valuation of FSLR is almost as good as the best silicon solars like CSIQ and TSL. In the last 1 to 2 years, the best Chinese solar P/Es have worsened going from about 5 to 20, while FSLR has improved from 150 to 20, eventhough silicon is cheaper. As silicon costs increase and RMB/dollar changes, I would not be surprised if FSLR P/E at the current market cap is 5 in 2 years and the best silicon solars are 50 to 100, with the rest not even making a profit. In comparison to the current trends, efficiency and installation are red herrings. The killer to FSLR's party is going to be tellurium, no later than end of 2012 if they continue to increase production 150% like they've been doing. But they should at the very least triple current production again and hold there for 10 years keeping the current profit margin as their capital expenses greatly decrease. My bet is that the drop in P/E will continue and it will look like a great buy in 1 to 2 years and then I'll sell before the negative tellurium announcements start trickling in. If rate of production increase slows, it will be a hold for 5 years. They may wisely slow installation of new lines in order to delay a runup in tellurium price from their own demand. heir tellurium costs could go from $0.03/W (?) to $0.30/W.

Aug 20 10:05 AM

[manuel:]

German Q Cells (Europe´s First Solar) is trading at March lows, 10 Euros, 2 times 10 Euros was support in 2009, went from 20 to 10 in the last 4 months, never got any lower in the last 4 years, I think it is a Good buY

Aug 31 12:51 PM