The Solar Trade War Is On

The solar trade war has officially begun. Yesterday, China's Xinhau News Agency reported that European officials balked at real negotiations over China's dumping of subsidized product on Europe and are now ready to impose tariffs on solar products coming from China. A negotiated solution may have resulted in Chinese manufacturers raising prices in both the U.S. and Europe, but it now appears that Europe will put onerous tariffs on imports, likely without the loopholes that make U.S. tariffs ineffective.

This is a big hit for the Chinese solar industry and some of the biggest players in solar. Earlier this month, The Wall Street Journal reported that Europe was poised to put a 48.6% tariff on Suntech Power's (NASDAQOTH: STPFQ  )  panels, 55.9% on LDK Solar's (NASDAQOTH: LDKSY  ) , and 51.5% on Trina Solar's. Companies who cooperated with the investigation on dumping would be slapped with a 47.6% tariff and those who didn't would be taxed at 67.9%.  

No matter how you slice it, tariffs this large are terrible for Chinese solar companies trying to sell into Europe. This used to account for a majority of sales for most companies, but now China will likely have to fill the gap.

A silver lining
There are a few companies this is good for, something the market isn't recognizing right now. Europe has been a huge drag for both SunPower (NASDAQ: SPWR  ) and First Solar (NASDAQ: FSLR  ) over the past few years and this may be a chance to turn that momentum around.

SunPower generated a gross margin of -32.2% in Europe last quarter, compared to 32.5% in the U.S. and 18.2% in Asia-Pacific, leaving a ton of upside for improvement. First Solar has been all but pushed out of Europe, but a new high-efficiency product from acquisition TetraSun, and higher tariffs on Chinese modules, may bring the company back to competitiveness.

SolarCity (NASDAQ: SCTY  ) won't see a change in what it pays for Chinese modules -- and that's a good thing today. Part of a potential negotiation among the U.S., Europe, and China could have led to China raising prices on all solar modules here at home. That could have resulted in higher costs for SolarCity, something that will be averted for now.

Foolish bottom line
The U.S. put tariffs on solar cells from China last year; sometime in June we're expected to hear about more expansive tariffs in Europe. The bad news is piling up for Chinese solar manufacturers, who are now relying on China for growth in demand. That's a tough position to be in, and it may force the country to pick which companies will survive and which won't.

Tariffs are another reason to stick with high-quality U.S. solar companies. SunPower, First Solar, and SolarCity are at the top of the list and they will all benefit from Europe's pending tariff actions.

The massive opportunity for First Solar
Investors and bystanders alike have been shocked by First Solar's precipitous drop over the past two years. The stakes have never been higher for the company: Is it done for good, or ready for a rebound? If you're looking for continuing updates and guidance on the company whenever news breaks, The Motley Fool has created a brand-new report that details every must know side of this stock. To get started, simply click here now.


Read/Post Comments (3) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 24, 2013, at 6:12 PM, xetn wrote:

    Mercantilism is alive and well! As for the term "dumping", it is just a phrase that means the other fellow can make and sell cheaper than you.

    Most people want to buy stuff at the cheapest price as long as it satisfies their need. Propping up a domestic market that is not competitive just makes the domestic consumers pay a higher price to "protect" their mostly union workers.

    Let the trade wars begin, just like in the 1930s. As Yogi Berra said: "its deja vu all over again".

  • Report this Comment On May 25, 2013, at 7:36 AM, dragonmonkey wrote:

    Dumping does not mean the other fellow can make and sell cheaper than you. Dumping means they are selling the product overseas for less than the cost of production. In China's case, government support of the industry allows them to "dump" products in the hopes of gaining enough market share in the short term to drive competitors out of business.

  • Report this Comment On May 27, 2013, at 2:58 PM, Mega wrote:

    The solar trade war has been on for several years. Previously it was mainly in the form of subsidies, now it is tariffs.

    Green energy is great. But all of these companies are currently horribly unprofitable, including the so-called "high-quality" US companies.

Add your comment.

DocumentId: 2450133, ~/Articles/ArticleHandler.aspx, 4/24/2014 4:26:10 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.


Advertisement