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The difference between solar manufacturers is razor thin right now, and any competitive advantage can mean the difference between survival and oblivion. In recent earnings releases, we've seen just how much small differences can impact financial results.
The solar industry can be measured by two main criteria: module efficiency and cost per watt. Without one, the other is useless, because they interact to define a company's competitive position.
Below I've compiled a list of five top solar manufacturers with their sequential change in sales, gross margins, and top module efficiency. Gross margins should give us a proxy for cost per watt. This should give us an idea of how module efficiency is impacting margins and sales in this small sample set.
Q/Q Sales Change
Top Module Efficiency
|Suntech Power (NYSE: STP )||(22.3%)||9.9%||14.9%|
|Yingli Green Energy (NYSE: YGE )||(39.7%)||3.0%||16.2%|
|Trina Solar (NYSE: TSL )||(9.6%)||7.1%||16.4%|
|Canadian Solar (Nasdaq: CSIQ )||(5.1%)||8.7%||16.5%|
|SunPower (Nasdaq: SPWR )||(20.1%)*||7.9%||19.6%|
Source: Company filings and datasheets. *SunPower gets a significant portion of revenue from utility and power plant sales, which are very volatile quarter to quarter.
As you can see, there appears to be some correlation between module efficiency and financial health. Of the Chinese manufacturers, Canadian Solar had the smallest drop in sales and maintained one of the strongest margins, partially due to higher-efficiency modules. Trina and Yingli simply don't compare well on these measures.
Another important thing to note from the table above is that SunPower was able to generate margins comparable to lower-cost manufacturers, despite higher costs. This underscores the importance of efficiency in the industry. As efficiency goes up, balance of system costs goes down.
It's these efficiency advantages that have compelled me to give outperform CAPScalls for both SunPower and Canadian Solar. They're both underperforming the market right now, but over the long term I think these two companies will be winners in the solar industry.
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