Canadian Solar (NASDAQ:CSIQ) is one of the biggest solar manufacturers in the world and has become one of the biggest solar project developers as well. That gives some diversity to the company's business, but it can complicate the company's financials as well.
Below, I'll take a look at where Canadian Solar's revenue comes from and where we can expect it to grow in the future.
Solar modules vs. project development
Manufacturing solar modules is the core of Canadian Solar's business. But it also builds projects and sells them to investors. Over the past year, the systems business has accounted for about 10% of total sales, including 18.8% of first-quarter 2017 sales and 6.5% of second-quarter sales.
The systems business is also a captive place to sell solar modules, so it augments the manufacturing business. But make no mistake: Solar module sales are Canadian Solar's No. 1 business.
A global pipeline of projects
Before I get to solar module sales, I think it's important to cover Canadian Solar's systems business and how geographically diverse it's become. As of early June, the company had a 2.2 GW pipeline of contracted projects and 1,156 MW of projects on the balance sheet. The pipeline ranged from Japan (626 MW) and China (400 MW) to the U.S. (401 MW) and Mexico (68 MW).
808 MW of the 1,157 MW of projects on the balance sheet are U.S. solar systems, which will likely be sold in the next few quarters. In the future, the systems business will be much more geographically diverse, and that should help lower risks from policy, financing, and operations that could be disrupted in different ways around the world.
Module sales are all over the map
Sales of solar modules are Canadian Solar's most important business, but it's also much more free-flowing than projects that are contracted years in advance. You can see below that the company has swung from the Americas being its largest market in Q1 2016 to selling the most modules in Asia Pacific (mainly China) the last two quarters.
Like most manufacturers, Canadian Solar shifts to sell where there's demand. In 2016, developers were building out projects in anticipation of the investment tax credit ending (it was later extended), and today, China's market is booming as feed-in tariffs and programs like Top Runner drive growing demand.
What investors will want to watch in the future is Canadian Solar's margins as customers trend toward higher-efficiency solar modules. Of the company's 4.5 GW of cell capacity, 4 GW is poly silicon, an older, less efficient technology that is losing market share. Only 500 MW of capacity is mono silicon, or mono PERC, which are leading technologies in the commodity solar market today. That could become a disadvantage for Canadian Solar and force the company to compete more in price-sensitive markets rather than markets that value high efficiency, like the U.S. and Japan.
A diverse commodity solar play
Overall, Canadian Solar is competing in mostly commoditized segments of the solar market. Poly silicon and even mono PERC are common technologies and will rise and fall based on global solar demand. Even the system development market has become low-margin for developers as more utilities and solar companies enter the space. As such, Canadian Solar's fortunes ride with the overall growth of solar energy, for better or worse.