What Does SolarCity's Latest Acquisition Mean for GT Advanced Technologies?

Residential solar is exploding all over the world, especially in the U.S., and over the next few years, it's expected that the continued growth in demand will start pushing solar manufacturers to add capacity. SolarCity's (NASDAQ: SCTY  ) acquisition of module maker Silevo was largely driven by this coming reality. Add in that technical advances, such as GT Advanced Technology's (NASDAQOTH: GTATQ  ) Merlin and other advanced manufacturing systems, are helping panel makers both reduce cost and increase efficiency, and there's plenty of reason to believe that the coming generations of panels will be both more efficient, and more cost competitive on a per-watt basis. 

And while on the surface the Silevo acquisition might not seem like it has anything to do with GT Advanced Technologies, it's indicative of a larger industry trend that has real repercussions for the company's solar manufacturing systems, and advanced materials business. Let's take a look at what's going on, and how it could affect GT, and the implications for SolarCity.

Silevo modules in a residential installation. Source: Silevo Solar

Move toward increased efficiency panels in residential 
As I wrote earlier this week, it's going to be several years before we know how SolarCity's purchase of Silevo will pan out. But what we do know is Silevo's technology is a step toward more efficient panels for SolarCity, versus the low-cost, commodity panels it currently gets from Chinese-based suppliers. If SolarCity is able to scale up Silevo cells -- which are about 22% efficient, which translates to modules upwards of 18% efficiency -- to production levels that support its internal needs, the benefits to lower cost in its supply chain, warranty, and installation could be, if not significant, then at least measurable. But it largely boils down to SolarCity's ability to scale up Silevo and produce panels at a competitive cost-per-watt.

Cost-per-watt has, so far, been the biggest driver in residential solar. Most residential installations have plenty of roof space, which means that higher efficiency panels haven't really been required, and lower-cost, lower-efficiency, largely Chinese-made panels have been the lions'-share of installations. However, with technology improving, and manufacturing scales helping to drive costs down, the benefits of higher efficiency panels are starting to trickle into the residential market. 

And this is a boon for GT Advanced Technologies 
As I wrote back in March, GT Advanced has positioned itself to reap the rewards of capacity growth in coming years. Silevo uses a proprietary technology to reduce the use of silver in modules, replacing it with copper. Similarly, GT Advanced Technologies' Merlin Metallization and Interconnect does the same thing for panel makers. 

What is interesting about GT Advanced's Merlin, is that it can be integrated into existing production lines, and for panel makers like Trina Solar and Yingli Green Energy, among a dozen or more others, being able to implement a proven technology, versus investing in development of something in-house, could be the smart way to remain competitive with higher efficiency panel makers. 

GT Advanced HiCZ monocrystalline furnace. Source: GT Advanced

Additionally, the company's latest CVD Reactors, FBR, and HiCZ system, are all big steps forward in lower cost to purchase, lower cost of operation, and higher production output, than previous generations. And with the efficiency race ramping up, and the need to produce more panels at a lower cost also becoming a priority, GT Advanced is very well positioned to benefit from the growth in solar over the coming decade. The orders have already started coming in. This March, GT Advanced received a $336 million order for a Malaysian PV plant, and just received a commitment from Qatar Solar Energy to supply its HiCZ systems for a solar manufacturing plant. This plant could be as large as 2.5 gigawatts in size upon completion, so the order could be enormous. 

Final thoughts: Early in the game 
As much as both SolarCity's and GT Advanced Technologies' stocks have rocketed up over the past year, it's still really early in the solar story. What does seem apparent, though, is the push to integrate manufacturing into its business by SolarCity, and the shift toward higher efficiency panels, combined with the sharp growth in demand for panels in coming years, could lead to very big numbers for GT Advanced Technologies. The company's role as a supplier for panel makers, combined with its industry-leading materials know-how, puts it in a fantastic position. Even with the run-up of the stock, GT Advanced looks like a great buy today. 

As to SolarCity, the jury is still out on how its vertical integration move will play out, but I'm hanging onto my shares. So far, management has demonstrated great judgement in capital allocation, and with Elon Musk's insight undoubtedly having some role in this move, I'm prepared to ride out any volatility, as long as the company continues to grow and develop its business. 

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  • Report this Comment On June 19, 2014, at 12:16 AM, kschof13 wrote:

    Thanks for an excellent article Jason. In addition to the technologies you mentioned, another important piece of technology that GT Advanced Technology also brings to the table is it's Hyperion Ion cannon, a piece of technology which is unique, which is protected by 50 or more patents, and which will aid significantly in both reducing the cost and weight of solar cells (as well as sapphire for cover screens and other applications and potentially for Silicon Carbide for power electronics applications, two other very hot markets in which GTAT has staked out a leadership position).

    The Hyperion technology accomplishes this by enabling GT Advanced Technology's customers to create slices of polysilicon or other materials that are only 50 microns thick through a hydrogen ion implantation and exfoliation process, reducing materials usage / cost and minimizing kerf loss / waste. So this is yet another formidable technology GT Advanced Technology is just now bringing to market and which I expect will generate a very significant revenue stream over the next few years as it brings even more efficiency to the solar market, the sapphire market, the silicon carbide market, and who knows what other markets!

  • Report this Comment On June 19, 2014, at 2:00 PM, lagunab1 wrote:

    The sapphire play is a new materials play. Applications for this technology will fall between full sapphire, laminates and coatings....a full spectrum of NEW product applications. So, yes solar will be a BIG but this is a multibranched tree!

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Jason Hall

Born and raised in the Deep South of Georgia, Jason now calls Southern California home. A Fool since 2006, he began contributing to in 2012. Trying to invest better? Like learning about companies with great (or really bad) stories? Jason can usually be found there, cutting through the noise and trying to get to the heart of the story.

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