Wall Street's Half-Reports on the Solar Industry's Bright Future: Part 3

by: Clearwave Capital

<< Return to Part 2

The most dangerous untruths are truths slightly distorted.

- G. C. Lichtenberg

Ben Sills and Reed Landberg of Bloomberg recently published another negative report on solar stocks. They stated:

"Investors are starting to doubt profit estimates for China’s solar manufacturers as concerns about accounting practices first spotted at a forestry company spread nationwide."

How do they know that investors are starting to doubt profit estimates? Where is the formal survey?

Bloomberg states:

"Renesola (NYSE:SOL), a solar wafer maker whose sales more than doubled last year, is down 33 percent in New York trading since June 2 when Muddy Waters founder Carson Block published his note on Sino-Forest (OTC:SNOFF). Trina (NYSE:TSL) has fallen 14 percent and LDK (NYSE:LDK) by 9.2 percent."

This is spin. This misleads the reader into thinking that Muddy Waters thinks that Renesola or LDK are fraudulent like Sino-Forest. Spin is very effective as it mixes true statements of different things to make the reader believe something untrue. Spin was used by Washington into brainwashing 70% of Americans into thinking that Saddam Hussein was involved in 9/11 (poll). An example is this:

Terrorism has killed a lot of people. Saddam Hussein has killed a lot of people. 9/11 was a horrible even that we should prevent. Saddam has done horrible things to his own people. We must never let terrorism happen again. We must never let Saddam cause horrible things again.

If you say the above enough times and in different combinations, you can brainwash people into thinking that Hussein was a terrorist involved in 9/11.

Also, there are numerous differences between Chinese solar stocks and the reverse mergers:

  • Many of them, such as JA Solar Holdings (NASDAQ:JASO), is an IPO, not a reverse merger.
  • It is audited by a big four.
  • The reverse mergers do business mainly in China.
  • The Chinese solar companies sell their products mainly to Western countries, not within China.
  • Their sales are being monitored by the West, such as EPIA (European Photovoltaic Industry Association).
  • They are competing against numerous Western companies.
  • They have partnered with Western companies. JASO has partnered with MEMC (WFR) and Wells Fargo (NYSE:WFC).

In addition, EPIA says that Chinese solar companies are taking market share from manufacturers of other countries, growing market share from 15% in 2006 to 50% in 2010. Read more in "Wall Street's Half-Reports on the Solar Industry's Bright Future - Part 2."

European competitors, such as REC Group, are confirming this by saying:

"challenging to compete against 'China Inc.'
– Aggressive expansion on low cost base
– Strong governmental support"

Source: Page 12

If Chinese solar stocks are beaten down because of the Chinese scare, then Baidu (NASDAQ:BIDU), Sina Corp. (NASDAQ:SINA) and Melco Crown Entertainment (NASDAQ:MPEL) would be beaten down as well, but they're soaring. The Chinese solar stocks are beaten down because of Wall Street's numerous negative and sometimes misleading reports. Read more about the numerous negative reports at this blog.

Canadian Solar (NASDAQ:CSIQ) sees:

  • Q2 shipments of 295 MW, above earlier forecast of 245-255 MW (which is a positive)
  • Q2 gross margin of lower end of 13-15 pct range (which is a negative)

Which of the above does Reuters use for its heading? They published this July 23, 2011 article: "Canadian Solar CFO quits; sees Q2 margin at lower end of estimate." Why didn't Reuters include the increased shipments in its title as well? Reuters also has this sub-heading: "MARGIN WORRY." There is no sub-heading called: "SHIPMENTS INCREASE MORE THAN EXPECTED."

The reason Canadian Solar is going to be at the low end of margin is because "The increase in shipments forced the company, which has its in-house cell production plants, to buy more cells from outside." This means that their total net profits should increase. That is a desirable problem. Which of the following would you prefer?

  • You sell 100 cups of lemonade at $1 margin each, making $100 gross margin.
  • You sell 150 cups of lemonade at $.80 margin each, making $120 gross margin.

The margins are not shrinking because their selling prices are dropping or because their normal expenses are going up. They are shrinking because Canadian Solar is selling too much.

Instead of "MARGIN WORRY", shouldn't the sub-heading be this?:

As explained in Part 1 and Part 2, there are other news and data that is not reported to you by Wall Street.
Below is a listing of positive news, many of which are not reported by them. This list is a result of a scan for only a few weeks of news. In the past, there were other positive news articles that have come and gone without being reported on by Wall Street.

August 3, 2011: Ikea buys solar panels for £4 million
August 2, 2011: U.S. and China on course for top solar spots

... [worldwide] ... should see installations double from the first half.

... there will be an additional 22 gigawatts of photovoltaic (PV) capacity added in 2011 ...

(This growth is faster than forecasted earlier this year by EPIA, as described in Part 1. EPIA had forecasted 13-21GW for the whole world in 2011.)

... plummeting module prices, as well as incentive programmes in new markets.

... This will lead to a “huge surge” in installations ...

... expectations of 1.3 GW worth of installations this year, rising to over 2GW in 2012 [in China]

(This growth is faster than forecasted earlier this year by EPIA, as described in Part 1. EPIA had forecasted 0.75-1GW for 2011 and 1.5-2GW for 2012 for China.)

August 1, 2011: Solar demand in Germany and Italy heating up

According to industry sources, orders have been increasing and with the capacity of solar firms, and it has been difficult to accept all incoming orders.

(Read Part 2 and this article, which describe how Wall Street firms have been using "over-capacity" to spread FUD (fear, uncertainty or doubt) about solar stocks since 2009.)

According to the demand from end market customers, Germany's solar market will continue to heat up in the third and fourth quarters, industry sources indicated. Market watchers estimate total installations in Germany in the second half of 2011 will be around 4-6GW. The solar market in Italy will be better in the fourth quarter with installations reaching 2GW in the second half of 2011.

(Germany's growth is faster than forecasted earlier this year by EPIA, as described in Part 1. EPIA had forecasted 3-5GB for Germany in full year 2011.)

August 1, 2011: China announces FIT

... Chinese solar demand of two gigawatt (GW) in 2012 expanding to five GW.

... China could become one of the top photovoltaic markets.

... FIT program is the cornerstone on which a goal of 10GW of installed capacity by 2015 and 40-50GW by 2020 could be achieved.

(This growth is faster than forecasted earlier this year by EPIA, as described in Part 1. EPIA had forecasted 1.5-2GW for China in 2012 and 3-7GW for 2015. To be fair, TheStreet.com and Barron's had reported about China's new FIT, but note the difference in negativity in TheStreet.com's article and the above article.)

July 31, 2011: NC Could Be home To 4,000 Acre Solar Project
July 29, 2011: Naoto Kan, Japan Prime Minister, Calls For Nuclear Energy Cutback

Japan's Prime Minister Naoto Kan on Friday called for a long-term and careful effort to scale back the nation's reliance on nuclear power over the next four decades and make more use of solar energy ...

July 27, 2011: Solarbuzz: Major Asia Pacific Photovoltaic Markets to Reach 26% of Global Demand by 2015

Asia Pacific photovoltaic markets are set to grow rapidly and are projected to account for approximately one-quarter of global demand by 2015, up from 11% in 2010

... China's market to expand in 2011 by up to 174% over its 2010 level.

... Japan was the fourth largest PV market in the world in 2010, doubling for a second year in a row and installing 960 MW ...

... [India's] goal of installing 22 GW of new solar capacity by 2022 ... As of June 2011, the on-grid pipeline of projects targeted for completion by 2013 stood at 1.5 GW.

July 26, 2011: Massive solar tower in Arizona to be world's 2nd largest building

The solar tower will generate more than 1 million megawatt hours, which would be enough for 150,000 homes ...

It will be twice as high as the Empire State Building, and almost as big as the world's tallest building in Dubai, the Burj Khalifa.

Some 1,500 people will be hired to help build the $700 million facility.

More solar towers are planned for other states in the desert Southwest as well as Mexico, India and perhaps even Australia.

Arizona will likely get more, too.

July 26, 2011: Video: U.S. Solar Growth Coming, But Will Manufacturing Follow?

According to the EPIA global market outlook through 2015, the American solar industry is expected to rise among the world leaders in installed capacity. And a peek at the scale of projects either under construction or under development shows that demand is there, and it’s mostly coming from photovoltaics.

When President Obama called for a “renaissance of American manufacturing” last month, he may as well have been speaking directly to the country’s emerging solar industry.

“The great news is that over the next five years, we’re going to see grid parity become a true reality in the United States, in places like Italy, and of course, in places like Germany and others very soon after. As those markets become more economically driven and less policy driven, really the sky’s the limit.”

July 26, 2011: Circular economy investment up

The Chinese government will double its investment in the circular economy this year to 2 billion yuan ($300 million) to support the national policies of energy conservation and emission reduction, a senior official said on Monday.

July 25, 2011: DuPont (NYSE:DD) buys solar ink maker Innovalight

DuPont already is a big player in the solar market. It makes the films that protect solar cells from moisture and other environmental damage. The company said the solar market brought it over $1 billion in revenue last year.

July 23, 2011: Germany: The Solar Installation Efficiency Leader

Feed-in tariffs

In last month's semiannual update to the Renewable Energies Act (EEG), the bedrock of Germany's sustainable energy push, feed-in tariffs – which require utilities to pay a generous rate for any electricity generated by privately owned solar systems -- for solar energy were reconfirmed with no fixed capacity cap in sight.

The "own consumption bonus" was also extended until 2013, providing a strong signal for the further expansion of the residential, decentralized market. Additional federal funding has been announced in recent weeks for energy storage and smart grid technologies.

Already the home of nearly half of all solar installations worldwide, the German PV market is on the verge of a paradigm shift that can't be found anywhere else: the development of a grid parity market.

Soon feed-in tariffs will be redundant, as solar electricity will be cheaper than power from the socket. Falling system prices are driving this shift.

July 22, 2011: Italy Passes 7,000 MW of Total Installed Solar PV

Despite last minute mixed-signals by the Berlusconi government, it now appears that Italian tariffs for the remainder of 2011 and 2012 are fixed. Effectively No Cap on Rooftop Systems.

July 20, 2011: Study ranks air pollution from coal and oil-fired power plants

“Coal pollution is killing Americans,” said Dr. Lynn Ringenberg of Physicians for Social Responsibility. “As a pediatrician for over 30 years, I urge us absolutely to support the EPA’s efforts to reduce the health threat from coal.”

July 18, 2011: MEMC and its SunEdison Subsidiary Join Flextronics to Celebrate Creation of Approximately 400 New Jobs Supporting Solar Module Production
July 15, 2011: Italy's New Solar Subsidies: Complex

... Italy could easily exceed 2,000 MW of total installations, small and large, in 2011.

... Italy is targeting 23,000 MW of solar PV by 2017. Italy officially installed nearly 1,900 MW of solar PV in 2010 ...

July 9, 2011: New Italian Tariffs Complex and Robust

1,200 MW Cap on 2011 ...

... More than 2,000 MW May be Installed in 2011

While some in the media have reported that the new Italian program dramatically cuts the tariffs for large groundmounted systems, the tariffs remain 50% to 70% higher than comparative tariffs in Germany when adjusted for Italy's greater insulation.

June 20, 2011: Large solar project planned by McGraw-Hill (MHP)

... will be the largest privately-owned and net-metered solar project in the Western Hemisphere.

Feb 8, 2011: Retailer [Body Shop] raises the roof on solar energy savings
Disclosure: I am long JASO.