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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?