The petition that Suniva and now SolarWorld have made under Section 201 of the 1974 Trade Act is throwing the solar industry for a loop, because it could dramatically increase costs for installers. But as the petition moves forward, SunPower Corporation's (NASDAQ:SPWR) stock marches higher and higher, a seemingly strange move on the surface.
If we dig into the filing and SunPower's business, the move makes more sense. In fact, SunPower could be one of only a few winners if Donald Trump decides to follow Suniva's recommended price floors of $0.40 per watt for solar cells and $0.78 per watt for solar modules. Here's how it could make millions just by being in the right place at the right time.
A price floor could be good for SunPower and bad for everyone else
SunPower's solar panels are the most efficient in the business, and that's always been the company's claim to fame. E-Series panels that make up most of the company's production are around 19% efficient and next generation X-Series panels exceed 22%, compared with 15% to 17% for conventional panels. As a result, SunPower can charge a premium for its solar panels.
Management doesn't disclose exactly how much of a premium it charges for solar panels, but it said during the first-quarter conference call that it can be "in some cases, depending on the end market, anywhere from [a] 50% to 150% premium."
Let's just take the price of $0.40 per watt for conventional panels as the example here. SunPower could be charging $0.60 to $1 per watt for its solar panels. Under a scenario where there's a price floor of $0.78 per watt, it may not even have to raise prices.
On top of that, if 15% solar panels are coming into the U.S. at $0.78 per watt, it's conceivable that the efficiency advantage of SunPower's panels will mean it can charge a significant premium to that level, maybe even over $1 per watt. If there's a price floor, it will be good for SunPower's high-efficiency solar business, even if it's importing panels from its production plants in Asia.
It's also worth noting that SunPower may not be as affected by any retroactive ruling as its competitors might. For example, if a Chinese competitor sold a solar panel for $0.40 per watt and then a retroactive price floor of $0.78 is put in place, it could owe $0.38 per watt in a tariff. SunPower's panels may owe a small tariff or avoid them altogether.
SunPower's supply is built for solar tariffs
Of course, the devil is always in the details when it comes to tariffs. U.S. tariffs put in place in 2014 that were meant to reduce Chinese dumping of solar panels were so limited they had almost no teeth. Manufacturers took to "tolling" solar panels in Taiwan before shipping them to the U.S. and eventually just built capacity outside China. The same could be true of the Section 201 tariffs, depending on how they're written. But a few future production scenarios are worth exploring in SunPower's case as well.
SunPower will probably try to leverage its new P-Series product if there's a tariff in the United States. P-Series uses commodity solar cells and shingles them together to make a panel that's slightly more efficient and can be built quickly. Management has said P-Series capacity costs just $0.05 per watt to build and takes just six months to ramp up. If true, that could give SunPower the ability to ramp up production to meet U.S. solar demand by next summer, no matter where it builds capacity.
If the tariffs are put in place flawlessly on any imports, it would make cells and modules more expensive overall. But SunPower could just buy cells for $0.40 per watt and use them as an input for its P-Series solar panels with a new U.S. plant, which would probably end with production costs between $0.55 and $0.60 per watt at scale. If SunPower could then sell those panels for $0.78 per watt, or more, that's at least a 23% margin and worth the $0.05 per watt in capital cost to build capacity (which I'll cover in a moment).
SunPower also has a P-Series plant in Mexico, which could be expanded quickly and could get around trade rules through NAFTA. Again, this would depend on how rules are written.
SunPower could also shift supply and production of P-Series solar panels nearly anywhere in the world. It could buy cells from China, South Korea, Japan, or even the U.S. and then assemble P-Series modules in a country such as the Philippines or Mexico if they're not subject to trade restrictions.
SunPower is the best positioned for solar tariffs
SunPower isn't taking a public position in favor of the proposed tariffs. CEO Tom Werner recently wrote in a blog post that the economic impact would hurt America and jobs. But that doesn't mean his company couldn't be a huge beneficiary if tariffs are put in place.
With Donald Trump in the White House and his penchant for protectionism, it's worth considering what will happen to solar stocks if the Suniva trade petition goes forward. In SunPower's case, the outcome may be a windfall for investors.