JA Solar (JASO) has responded robustly to plans by the European Union to consider tariffs on Chinese solar panels as part of an anti-dumping clampdown. But it and other Chinese solar companies such as LDK Solar (LDK) and Trina Solar (TSL) just cannot win and here is why.
The EU claims that Chinese firms are maintaining market share by selling products at a loss. The most recent financial statements from Trina Solar released on August 21st showed that it is indeed making a loss but that the number of panels shipped in the second quarter increased by 10%.
JA Solar's quarterlies released on August 29th showed that its second quarter revenues were 12.8% in currency terms and that it was loss making. In volume terms its shipments were up by 14.2%.
And so, it appears, that the European Union might just have a point here. When I advised shorting all these stocks on Seeking Alpha the response from the bulls was that the Chinese Government would offer financial support to ensure that its solar players survived long enough for other players to fold so ending the issue of overcapacity in the industry.
But it strikes me that the supporters of these companies cannot have their cake and eat it too. Given the bombed out balance sheets and ongoing losses at these firms I cannot see private investors actually supporting them so their survival depends on the Chinese Government providing assistance.
But if that assistance means that the companies have an unfair advantage (i.e. selling product at a loss for long enough to force out their rivals), the EU would have a very strong case for imposing vast tariffs on these firms because what is going on patently is dumping. And given that the EU is China's largest export market for solar (and indeed most things) would seem to be a very serious threat indeed.
JA has responded to the EU by saying that:
JA Solar believes in fair and open trade. As a public company, we conduct all our business transactions in a transparent manner. The imposition of anti-dumping tariffs on Chinese solar products would be highly damaging to both the European and global solar markets. Strong and fair competition across the global solar market has been the catalyst for rapid innovation and has allowed millions of consumers in Europe and around the world to access clean and affordable renewable energy. We believe that anti-dumping tariffs would jeopardize the huge progress the industry has made in recent years.
Of course. But the bald fact is that either the Chinese Government bails out companies like JA Solar in which case the EU will destroy its main market with penal tariffs, or loss making companies with severe debt issues will face an inevitable end-game. For the avoidance of doubt, that will be something approaching insolvency.
My original reasoning for selling LDK Solar and JA Solar can be found here.
My original reasoning for selling Trina Solar can be found here.
LDK is now $1.28 ( down from $1.38 when I first said sell), JA Solar is now $0.8 (down from $0.96) and Trina is now $4.02 ( down from $4.51). In all three cases my stance would remain sell with a target price of virtually nothing.