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What happened
Shares of solar manufacturer JinkoSolar Holding Co., Ltd. (JKS -0.14%) dropped 14.4% in September as solar stocks dropped across the board.
So what
The bad news during the month for solar manufacturers was that solar panel prices have continued to plunge in the second half of 2016. Panel prices are now at or below $0.40 per watt on the spot market, a level that would leave very little margin or possibly of profit for manufacturers like JinkoSolar.
Consider that JinkoSolar generated net income of $42.1 million in the second quarter, a net margin of about 2.5 cents per watt, selling solar panels at about $0.52 per watt. A 20% or more decline in panel prices to $0.40 would leave the company with massive losses as soon as the third quarter of 2016.
Now what
The solar industry is entering a phase of upheaval as supply increases outstrip demand growth around the world. Like in 2012, solar manufacturers will likely struggle financially, and some will even go out of business. JinkoSolar has as good a chance of survival as other major manufacturers, but with no real technology differentiation I wouldn't expect the company to maintain strong pricing power as panel prices decline. It'll be a battle for every sale, and I wouldn't be surprised to see losses mount in the next couple of quarters. What investors will want to watch is the balance sheet for signs of stress, because that's what causes real problems for solar manufacturers. If banks aren't willing to keep the company afloat it could be a real problem -- but for now the drop in the stock is speculation concerning future problems more than it is a sign that JinkoSolar is in trouble today.
