Seeking Alpha
Growth, solar, energy, long-term horizon
Profile| Send Message|
( followers)  

Summary

  • US customs officers are already collecting tariffs on most Chinese solar modules.
  • The majority of Chinese manufacturers will be shut out of the US market completely.
  • Trina Solar and ReneSola are two Chinese companies that stand to benefit.

So far, solar stocks have mostly shrugged off the USA's announcement of tariffs on Chinese solar modules. Although the tariff announcement is just preliminary, customs agents are already collecting cash deposits based on tariffs that range from 18 to 35%.

Of the Chinese manufacturers, Trina Solar (NYSE:TSL) got off lightest. It will only be charged an 18.6% rate, which is 28% less than most of its competitors. Despite the newfound competitive advantage, TSL is down 15% since the announcement of the tariffs. I think it's one of those perverse Wall Street moves that has created a buying opportunity for this stock.

The other Chinese manufacturer that might benefit from the tariffs is ReneSola (NYSE:SOL). SOL has 1.1GW of OEM manufacturing capacity; these are small factories from around the globe that have signed temporary contracts with ReneSola. Since these factories aren't located in China, the PV panels won't be affected by the tariffs. That gives ReneSola a great competitive advantage in the US market.

However, the tariff might prove to be a double-edged sword. The other half of SOL's production is located in China, so it will not be competitive in the US market. That means that it needs to compete for business with the rest of the world, in a landscape that just got more competitive. All things considered, I view the tariffs as a net positive for ReneSola.

That brings us to the other Chinese manufacturers, which I'll lump into a large group for convenience. The tariff is calculated based on the declared value of imported panels, which, as this page leads me to believe, is the panels' selling price. With average panel prices in the USA hovering around 70¢/W, this group of Chinese companies will incur tariffs of ~18¢/W. Margins are not large enough to support that type of cost increase for most of these companies. JinkoSolar might have low enough costs to handle it.

The table below summarizes the points I've made so far. While ReneSola will have the largest margins in the USA, Trina Solar will also have decent margins and it has more low-tariff capacity. I would not recommend buying the other companies at this point.

Company NameManufacturing cost/Watt from Q1 Earnings CallTariffManufacturing cost + tariff
Trina Solar53¢18.6%66¢
ReneSola60¢ for OEM0%60¢
JinkoSolar (NYSE:JKS), Yingli (NYSE:YGE), Hanwha SolarOne (NASDAQ:HSOL), Canadian Solar (NASDAQ:CSIQ), etc.~50¢26.9%69¢
Suntech (NYSE:STP)?, will estimate 50¢35.2%75¢
US-based SunPower (NASDAQ:SPWR)?, will estimate 80¢0%80¢
US-based First Solar (NASDAQ:FSLR)?, will estimate 45¢0%45¢

It's important to consider whether the new tariffs will cause substantially higher prices for consumers in the USA. I predict that they won't, at least in the short term (i.e. 6 months). The USA installed 4.8GW of solar power in 2013. Trina Solar and ReneSola can provide a combined 4.3GW of solar at relatively cheap prices... so those two companies, alone, can almost satisfy US demand. When you consider the US-based companies (First Solar (FSLR), SunPower (SPWR), Stion Solar, SolarWorld) and other suppliers around the globe (Sharp, Kyocera, REC...), I believe there is more than enough tariff-free supply to keep prices competitive in the US.

Finally, I'll close with two random musings. First, I wonder if SolarCity (NASDAQ:SCTY) and the other residential installers have signed any long-term contracts with Chinese PV suppliers? If so, will the suppliers be forced to honor those contracts even as their costs skyrocket?

I also find it ironic that the constant refrain used to be, "Solar power is not competitive without subsidies." Now we see that solar imports are actually bringing money into the United States at a rate up to 35%. That's an interesting turn of events.

Source: Winners And Losers From The U.S. PV Tariffs