This should be a glorious time for the solar industry as record installations are reported around the world but Yingli Green Energy (NYSE:YGE) poured some cold water on the industry yesterday. It announced preliminary estimates of first quarter results and said shipments would decrease by low 30s percentage points sequentially versus previous estimates of a mid-20s percentage drop.
The lower shipments are bad, but they're not the only story. Yingli also said that margins would be between 15.5% and 16.5%, an increase from the 14% to 16% range previously given. Higher selling prices have led to the higher margins and that should be a great sign for all manufacturers in the industry.
What can we learn from Yingli Green Energy?
The big reason shipments won't live up to expectations is delays in Chinese projects and in obtaining construction permits in Algeria. Those general trends should also impact Trina Solar (NYSE:TSL) and JinkoSolar (NYSE:JKS), who are betting on demand from China to grow shipments but it's also not a deal breaker long-term because projects will eventually be built.
To put the impact in perspective, in the fourth quarter, Yingli Green Energy shipped 53% of its panels to China, JinkoSolar was at 49%, and Trina Solar's share to China was 40% of shipments. So, any weakness in China will have a huge impact on each of these companies. You can also translate this to most Chinese manufacturers, who are highly reliant on China for future shipments.
But there's actually good news built into Yingli's announcement that shouldn't go overlooked. Management said that margins will be higher than expected due to a higher average selling price in the first quarter. That reinforces industry reports of higher prices in the first quarter and throughout 2014, including a report yesterday from GTM Research that said Chinese panels sent to the U.S. might go up in price 20% by the end of 2014.
Higher module prices are great for all solar manufacturers
The major challenge affecting solar manufacturers over the past three years has been oversupply and falling prices. Based on slowly rising prices, it looks like supply and demand is returning to a more normalized level and margins should rise throughout 2014. Remember that Q1 is typically the lowest demand quarter so panel prices will only rise from here.
Lower than expected shipments to China, on the other hand, is disappointing but I don't think it's a deal breaker. Yingli's management still expects shipments to be 4.0 GW to 4.2 GW in 2014 and Solarbuzz says installations worldwide will grow at least 35% this year to over 50 GW. Permitting problems happen in solar and China's astounding growth last year will come with some growing pains.
The most important thing to take from solar today is that panel prices are on the rise and manufacturers across the industry should be cheering that news.
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