Shares of solar manufacturer JA Solar Holdings Co., Ltd. (NASDAQ:JASO) fell 18.9% in September as the solar industry started facing some serious challenges.
Investors are starting to realize that late 2016 and early 2017 are going to be tough for solar manufacturers. Solar panel prices have dropped more than 20% in the last few months alone to $0.40 per watt, a level that will make it difficult for manufacturers like JA Solar to make money.
One problem is a boom in production, which isn't helped by JA Solar expanding production from 4.0 GW at the end of 2015 to 5.0 GW by the end of 2016. The other challenge is China installing around 20 GW of solar in the first half of 2016 before solar electricity prices were cut by the government. The reduced energy rates will result in a decline in demand, which led to much of the drop in panel prices I mentioned above. All of this could lead to losses for JA Solar in the next few quarters.
The solar industry will be turbulent for the next few quarters, and with losses on the horizon investors don't know what to expect from JA Solar. What will be key to watch is the trend in gross margins and the debt level, which is already at nearly $1 billion.
With solar panel prices falling and JA Solar offering little differentiation, there's no choice but to match the prices of competitors. In this highly competitive environment I don't see a reason to jump into shares until there's proof JA Solar can make money on low price solar panels. And that's an uphill battle right now.