Solar Sector Headed for Price War

Macquarie Research analyst Kelly Dougherty Tuesday morning turned bearish on the solar sector, cutting ratings on Energy Conversion Devices (ENER), Canadian Solar (CSIQ) and SunPower (SPWRA). Dougherty thinks the companies are going to be hurt by an accelerating price war.

“The Chinese manufacturers have turned up the heat and we don’t see much relief in site,” Dougherty writes. “We expect the Chinese to use their competitive cost structure aggressively to grab share and keep their facilities humming.”

Here’s a rundown on Dougherty’s new views on the individual stocks:

• Energy Conversion Devices: To Underperform, from Neutral, cutting target to $9.50, from $13 (Which compares to yesterday’s close at $12.44. The pressure on pricing from the Chinese players “is compounded by the fact that we believe ENER’s visibility remains very limited,” Dougherty writes. “We can’t overlook the significantly negative impact that further production furloughs could have on the company’s cost structure without a significant pick-up in demand, which seems mroe unlikely given increasingly aggressive Chinese pricing.”
• Canadian Solar: To Neutral, from Outperform. Target price: $17.50, a bit above yesterday’s close at $15.30. “Although CSIQ has nade great strides in improving its cost structure,” the analyst writes, “a price war is likely to mitigate much of those benefits.”
• SunPower: To Underperform, from Neutral. Price target now $23.50, below yesterday’s close at $26.75. “While we continue to believe SPWRA can command a steep pricing premium, a hostile pricing environment is good for anyone,” Dougherty writes. “We don’t expect the premium it is able to command will be meaningful enough to mitigate the margin impact associated with a likely Chinese price war.”

In today’s trading:

• ENER is down 17 cents, or 1.4%, to $12.27.
• CSIQ is down 65 cents, or 4.3%, to $14.65.
• SPWRA is down 50 cents, or 1.9%, to $26.25.

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Comments

[A Barrel Full:]

If the Chinese start to take the lion's share of this business, will Western governments continue to subsidise solar developments so much?

Aug 26 03:11 AM

[jerrydd:]

The days of massive subsidies is going to end soon and only the low cost producers like First Solar will survive.

But those that do will thrive as once $2/wt retail price is hit, the home/small business market becomes huge!!! Those who combine panels, mountings and inverter in a plug and play system for under $4/wt will make out like bandits.

Those that can't do $2/wt retail won't make it. Silicon will deserve a small premium over thin film for better life, smaller area/mountings but that's not so important in small systems as they only need 1/4 of the roof.

ECD is a terrible company who has never made a profit from selling product in 30 yrs of it's various names, officers. Only things it does well is press releases and gov subsidies/grants. The stockholders, customer are left with little to show for their money.

I don't think China can take over because thin film can be done with machines so no real labor advantage and in 10 yrs pricing will be $1-1.50/wt retail. Then add shipping and it becomes hard.

At those prices the market gets even larger. With the rising fossil fuel prices having PV will be almost required.

Aug 26 09:32 AM

[Fred W:]

The price war is already underway...FSLR will not be the "last man standing". Raw Si prices are just too low and going lower while CdTe are not "easily" mined/found.
ECD actually has a product that is well suited for A&E firms to integrate into their designs...small market currently but with LEED 3.0 valuing solar's contribution so highly within the point structure that ECD will have a relevant business line in the near future.

Aug 26 10:14 AM