Suniva's Section 201 trade case filed with the International Trade Commission is moving forward after the federal agency found "injury" against the manufacturer in what could be a devastating blow to the solar industry (see details on the case here and here). We won't know until early November what the commission's recommendation on tariffs or price floors would be, but we know some kind of protective measures are going to be recommended to President Trump, who could put new rules in place for as long as four years.
The impact on the solar industry as a whole in the U.S. will be negative, but it may not be as bad as the market currently thinks for solar manufacturers. Here's my prediction on how things will play out, and who the winners and losers will be.
U.S. manufacturers could get a boost
If protective measures are put in place against solar imports, the one clear winner in manufacturing would be First Solar (NASDAQ:FSLR). The company can increase capacity in its Ohio plant to over 1 GW, which would be enough to make it the market-share leader in the utility-scale solar sector. If rules are written to exclude thin-film solar, the company could be the dominant player for the next four years.
SunPower (NASDAQ:SPWR) is the only other major U.S.-based manufacturer, but it has very little manufacturing capacity in the U.S. today. As it eyes locations for a next-generation manufacturing plant, a decision against solar imports could tilt the scales for SunPower, and the company may find it economical to build in the U.S. There may be no company with more riding on the specifics of tariffs or controlled prices in this case, because the U.S. is a big market for SunPower and it's one location where its high-efficiency product is most cost-effective.
Chinese manufacturers may lose a big market
Big Chinese manufacturers like Canadian Solar (NASDAQ:CSIQ), JinkoSolar (NYSE:JKS), JA Solar (NASDAQ: JASO), and Hanwha Q Cells (NASDAQ:HQCL) will most certainly be negatively affected by tariffs or any other protectionist measures. The U.S. is currently the second largest solar market, although it may fall to third place with India's emergence in 2017. If these manufacturers are effectively shut out of the market, they would suffer incremental negative impacts, but they would likely shift their focus to growing markets across Asia.
Keep in mind that tariffs on Chinese solar imports in 2014 had very little effect on solar imports. The rules were written too narrowly, so manufacturers could easily get around them. That could be the case again this year, although President Trump seems to be very interested in punishing imports with tariffs, so there may be no loophole this time around.
Don't expect a flood of U.S. manufacturing
If the goal of tariffs is to increase U.S. manufacturing, I think the results will be disappointing. For most manufacturers (other than First Solar and SunPower, which are already based in the U.S.), there isn't a lot of advantage in opening up a new plant here because of tariffs. The length of tariffs in this Section 201 case can only be four years, and if the tariffs are lifted after that, a company could be left with expensive manufacturing capacity. The payback period for building in the U.S. would have to be extremely short, which isn't likely for most Chinese manufacturers.
As I mentioned, First Solar and SunPower are really the only two companies I could see setting up shop here. First Solar already has capacity in the U.S. and SunPower may already be leaning toward manufacturing here as well.
The real impact on solar manufacturers
If President Trump goes forward with protective measures, the most likely impact is that manufacturers will just move module supply elsewhere. In particular, Chinese companies will focus more on Asia and India, where there are more growth opportunities.
We've already seen SunPower add manufacturing capacity in China and Latin America to increase exposure to those markets, and it is a big player in France's solar market. So the U.S. may not be as big a loss as investors think. In the end, First Solar may be the only company that makes a move to increase its exposure to the U.S. because it has manufacturing capacity here.
It's important to note that the short-term impact may be exactly the opposite of the scenario I've described above. To avoid the potential tariffs or price restrictions, manufacturers could rush to bring solar modules into the U.S. before President Trump makes his decision. We will probably see a surge in U.S. demand in the fourth quarter as a result. So there could be some windfall profits to be had in the next few months as manufacturers determine exactly how they're going to adapt their businesses to likely U.S. trade protections. But don't think that manufacturers will really be big losers in protectionism: There's plenty of solar demand elsewhere in the world.