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

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.

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

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.

Further Musings on Solar Stocks

You wrote "FSLR has to build two panels in order to generate the same amount of electricity that a single poly-based panel will make." Do you have a link that shows poly modules will be 24% efficient in a few years? Do you have a good link that discusses the future of polysilicon prices?

Why Canadian Solar is the Best Solar Stock

In 2009, the indium report says there will be a shortage of 43 tonnes assuming 64 tonnes increase in non-ITO uses over 2007. The report does not give an estimate on future solar needs. 3 GW in 2011 will require 100 tonnes more than what they seem to predict, so it's 143 tonnes short (demand exceeding supply by 10%) in 2011 if the shortage remains about the same and if they are not sufficiently bullish on CIGS needs. Their charts do not go out to 2010 which is where I'm saying the problem could begin. Judging from their comments and graph, a 1% shortage caused a quadrupling of price. Their comparison to silver is absurd. The concentration that is in the Earth's crust is not related to minability. This type of reasoning is often use to make a false argument in metal discussions. The theoretically minable silver is 100 times more than the theoretically minable indium. The report shows that almost all increase in "production" is actually from LCD reclamation. There's only a 10% increase in virgin production from 2007 to 2009. The doubling of reclamation does not add up very well with the comment that reclamation is already at 60-65% of the 70% in LCD "targets" (waste). 100% reclamation only increases 35-40% of the 70% which is about 23% overall increase in reclamation instead of 100%. It's not a small discrepency since reclamation increase shown in their table is 90-95% of the total increase in supply. The difference is another difference of 25% between supply and demand. Although the table shows a great increase in reclamation, it does not show what happens when there is no more available efficiency increase in reclamation. That is, their table interestingly stops before the "end of the line" for significant indium reclamation increase...NEXT YEAR. The only valid point they make is that smelters can now afford to transport waste slag etc further from small producers. Most large producers already have it on site.

Why Canadian Solar is the Best Solar Stock

Purified indium already costs something like $2,000 per kg.

Although i agree with all your facts, i don't think they detract very much from my concerns. A likely scenario is that production goes up a little (eventhough it went down in 2007), LCD manufacturers find "good-enough" alternatives, and everybody pays a bit more. But in only 3 years there has to be massive changes in the indium world before CIGS can continue to grow.

I would be interested to know where sharp plans to get 50 tonnes of indium for 1 GW. That's 10% of the world supply. The LCD world in 2 yeyears will not allow that much to be sold for non-ITO uses. They'll need about one gram for a $800 TV? Whereas $800 of CIGS cells will need 5 to 20 grams. Solar cells might be important, but on a square foot basis, people think a big TV is more important, and will pay accordingly.

Why Canadian Solar is the Best Solar Stock

Jack, neither of my post were meant to promote or detract any stock. It's more like my doodling and musing over your article and wondering if FSLR needs to be so low and if CSIQ needs to be so high. I have 1.5% of my net worth in FSLR and 5% in solar. I recently divested myself from 10% net worth in oil and gold. Thanks to your article motivating me to look into CSIQ, i am considering switching to CSIQ. The CEO feb 2007 speech on the web site makes me like management as well as can be. Engineering, motivation, ethics, and long-term plan seem to be all in place as solid as a rock. Only new technology and disinterest in green can displace them.

ITO is using 84% of the world production. Poduction is 510 tonnes/year, leaving 80 tonnes for non-ITO. Being very generous to CIGS, ITO indium recovery could improve to keep up with bigger TVs eventhough demand from that sector is increasing 50% per year. There's already a shortage. Solar cells can't outbid big TVs, but can pay more for non-ITO indium. 80 tonnes means only 2 GW indium per year can be produced, enough for $2B in profits in 2010 for all CIGS companies. But the indium stops there. Recovery can improve only about 30% and CIGS at 1.5 um can theoretically get down to 20 tonnes per GW, so the indium might last until 2012 to make 8GW and $8B for the sector before hitting the indium wall. Indium is 100 ppm in zinc and you can't get it anywhere else. Indium accounts for 5% of a zinc producer's gross and maybe 15% of its profit. So if the price goes up another factor of 10 (which is supportable by both CIGS and ITO ...$0.10 per watt just for the indium), I guess you could flood the market with zinc just get to the indium and extend it even further. The theoretical max reserve base of indium with 100% recovery is 16,000 tonnes, theoretically enough for 1 TW, or $1 trillion in nansolar profits. But 5% of that disappeared into LCDs last year, given the so-so recovery. In 2010, 10% of the reserve base could go into LCDs, someday coming out for recycling.

Take your pick:

1) LCDs have to stop using so much, or
2) zinc plummets on indium going up a factor of 10, or
3) CIGS is idled by 2012 if not 2010.

Why Canadian Solar is the Best Solar Stock

OK, to correct some bad english: if supplies are going to be three higher than demand this year thanks to all these solar cell companies ramping up production, FSLR is in a good position (ignoring current high price) because it has the cheapest cells and largest profit margin. It sales could stay high, profit stay the same, while the sales and profit of everyone else plummets turns into massive quarterly losses. The 5% margin of CSIQ isn't reassuring in this scenario. We depend heavily on CSIQ's guidance on what they think they can sale and at what price, if we are to ignore the seeking alpha article that discusses too much supply in 2008.

Why Canadian Solar is the Best Solar Stock

The best-fit curve for FSLR growth for the past 5 years is 167% yoy. Multiply 2.67 times 2002 production and keep doing that until you reach 2007 and even into 2009 guidance, and it comes out right. 167% yoy. I did an article on it for seeking alpha. CSIQ has yoy revenue growth of 189%, best fit curve 2003 to 2008, and 220% for 2006 to 2008. But looking at their fact sheet, their gross profit from revenue has gone from 40% to 17% to 5% in the past 3 years. They hope for it to return to 14%. FSLR guidance is that their profit per revenue will stay close to 50% thanks to no competition with others who make this type of cell. CSIQ has revenue of $3.8 per total watt and FSLR has $2.40. Let's be optimistic and say CSIQ is returning to 14% profit per revenue, or $0.53 profit per watt verses FSLR's $1.3 profit per watt. So CSIQ has to produce and/or install and/or assemble 2.5 times more to match FSLR in profit. If CSIQ stays at 5% profit, it has to produce 7 times more. So it's not fair to compare just watt production.

If world demand is really three times lower than this year's production (according to another seeking alpha article). In excess supply, only the cheapest cells will be sold, killing everyone's profit except for the one (or two) company's that already have the cheapest cell. They will be able to retain their profit margin better. So it's not risk-free to invest in this Chinese company that has a Canadian name.

On the big plus side for CSIQ, if it acheives the 14% margin and equals FSLR watt production very soon as expected, then having a market capitalization 26 times less with profit/watt only 2.5 times less means it would have to be 26/2.5 = about 10 times higher to match the price of FSLR. At only 5% margin, it still has increase a factor of 3 to match FSLR price.

I can't believe anyone's still discussing CIGS when there's not enough indium in the world's minable crust to meet LCD needs in the next 5 years, let alone solar cells. I thought that pig was porked already.

Why Canadian Solar is the Best Solar Stock

Here's the fast money link:
www.cnbc.com/id/227348.../

She says she's talked about negatively repeatedly. Things like odd measuring sticks, nondisclosure, and the CEO owning half the stock.

I really wish seeking alpha would fix the awful programming: they have independent URLs or something for each image and they're loading seperately, even though it's the same image. Their pages, especially if there are any comments with the 3 little images next to the name, time, and date, cause really spooky things. One article had to load 300 freaking images, in addition to all the fetch and reply requests needed for each one, simply because people posted a lot of replies....but there are only needed to be 30 or so independent images with only one fetch and reply each to do the same thing. They must have paid a lot of money for someone to do such a bad job. Normal programmers can't do this bad if they tried.

Why Canadian Solar is the Best Solar Stock

SOLF was cited by the non-male on Fast Money to be the worst stock to put your money in. This Chinese company had a mysterious fantastic increase in profit and they will not disclose how much they are selling their cells for. She seemed to be saying it's a very questionable company. My impression is that no one knows what their profit or sales are.

Why Canadian Solar is the Best Solar Stock

Sorry, I was posting from memory and there's a missing divide by 4 in my post. PE in 2009 is 68 based on 5-year historical growth which is very close to guidance. PE less than 10 time frame is in 2012 assuming dollar does not increase against the Euro by more than 50%. Current yoy growth is 167%, not 180%.

Why Canadian Solar is the Best Solar Stock

The core technology at the 5-year level for FSLR is the best of all these. They will keep a $1/Wp profit for 3 to 5 years while their price to utilities reduces to nearly 1/2 current price which is already 1/2 the price per Wp of the others you have listed. The 5-year year yoy growth of FSLR is 167% per year and and 180% per year for the past 2 years. Their "scheduled production" (underestimate) is 1 Billion watts to utilities in 2010. $1.5 B Wp sold in 2010 is reasonable. At a current market cap of $15 B (error in your sheet), that's a PE of 10. By listing FSLR last, it shows your methodolgy is pretty blind, as you explained at the top.