Shares of leading solar companies are up big this week. This week's move is driven by both optimism over the industry's future and some company-specific dynamics.
SunPower Corporation (NASDAQ:SPWR) has led the charge, climbing 15% in the past week after filing for an exemption from solar tariffs for its high-efficiency solar imports. But Canadian Solar's (NASDAQ:CSIQ) strong earnings report has helped pull the rest of the industry higher, and 2018 may shape up to be a better year than expected.
SunPower's plans could change in 2018
The stock leading the solar industry in the past week is SunPower, the manufacturer that has been hit hardest by President Trump's solar tariffs. SunPower filed for an exclusion from solar tariffs for its high-efficiency back-contact solar cells and panels, which it says don't harm U.S. manufacturers and are built with different solar technology, much like First Solar's (NASDAQ:FSLR) thin-film panels. If SunPower gets the exclusion, the impact on earnings could be $50 million to $100 million in 2018 and even more in 2019.
What could change the game for SunPower was revelations that the company is looking at two potential U.S. manufacturing sites for its P-Series solar panels. P-Series panels are built with commodity solar cells that are then shingled to create a panel with higher efficiency than the competition can build using the same cells.
If SunPower gets an exclusion from solar tariffs on its high-efficiency solar panels and builds domestic capacity for P-Series solar panels, it could reap windfall profits as most of its competitors would be facing the high-cost tariffs. That speculation is driving SunPower's stock higher this week.
Earnings continue to exceed expectations
Another factor driving solar stocks higher is Canadian Solar's great earnings report earlier this week. The company reported a gross margin of 19.7%, very high for a Chinese solar manufacturer, and said net income was $61.4 million, or $1.01 per share in the fourth quarter.
What's more, the guidance for 6.6 GW to 7.1 GW in shipments in 2018 seemed to please the market overall. It may not be any growth from 6.82 GW shipped in 2017, but the fact that one of the biggest solar manufacturers in the world isn't expecting shipments to decline given cuts in China's feed-in tariffs and the U.S. newly implemented import tariffs may be good enough. The solar industry may now be getting demand from enough countries that one government's actions won't kill the industry. That is indicative of stability investors should love to see over the long term.
What to watch in 2018
In about two months, we should know if SunPower gets its desired exclusion and what its plans are for P-Series manufacturing in the U.S. If it gets the exclusion, the stock's run higher may just be getting started.
I'll also be watching the dynamic between commodity solar manufacturers like Canadian Solar, premium suppliers like SunPower, and thin-film manufacturer First Solar. The conventional wisdom is that First Solar will be the biggest beneficiary of solar tariffs, but companies like Canadian Solar don't seem to be fazed by them, judging by 2018 guidance. And if SunPower builds a plant in the U.S., it could eat away at First Solar's domestic advantage.
2018 will be another eventful year in solar, and the last week gives the industry a little momentum. The question is: Will it last?