SunPower Corporation (NASDAQ:SPWR) has spent the last few years just trying to survive in the solar industry, and has made some mistakes along the way. It's gone from expanding solar farm development to exiting utility-scale development entirely, even abandoning its traditional solar cells for that market. In residential and commercial solar it's struggled to keep up with the cost and efficiency improvements of commodity suppliers, putting pressure on margins.
This year the company has demonstrated that its technology investments in what are known as A-Series and P-Series solar panels are beginning to pay off. P-Series is growing like crazy, and A-Series is just showing its potential. If both products continue to gain momentum and SunPower can build scale, it could be on a growth path once again and be a top renewable energy stock if all goes well.
The product you didn't know SunPower needed
When SunPower announced the acquisition of Cogenra and its technology in 2015, which ultimately become the P-Series product, there were high hopes but a lot of skepticism about how effective the product could be. Cogenra hadn't produced solar panels at scale, and SunPower was losing ground in utility-scale solar markets because its premium products were too expensive.
The biggest move SunPower made to produce P-Series panels at scale was a joint venture with TZS in China. SunPower would provide the technology, and TZS would provide most of the capital, manufacturing expertise, and low-cost manufacturing access for the P-Series. If successful, the companies said they could ramp to multiple gigawatts (GW) of production relatively quickly. Now that's proving to be true, with CEO Tom Werner saying in the Q3 2019 conference call:
The first P-Series modules were produced by the JV at the end of 2017, and in 2018, we sold just under 300 megawatts of panels from the JV. In 2019, we expect that our sales volume of JV-produced panels will grow to almost 1.2 gigawatts, more than a fourfold increase.
The run-rate of production is now 2 GW, and the two companies are discussing expanding that further. Combined with 100 MW of production of the P-Series in Oregon this year, the product is a growth engine for SunPower.
P-Series fills the commercial and utility-scale channel with a cost-competitive product, and enables SunPower to leverage its dealer networks in those markets. It's never going to be a high-margin product, but it'll fill out markets where the A-Series can't compete.
Growth on SunPower's home turf
While P-Series growth is great, the product is primarily sold to dealers and competes with commodity solar panels. The A-Series product, which is differentiated by its higher efficiency, has a higher margin for SunPower, and higher sales-price-per-watt-produced. The company doesn't disclose specific margins for the product, but management has said that it's the highest margin panel the company makes.
What the A-Series lacks is scale. There's only expected to be about 250 MW of A-Series production in late 2019 and early 2020, which pales in comparison to the output of the largest manufacturers in the world, which are producing 10-40 times that much product in their manufacturing plants.
What SunPower's management is trying to do is find a partner to help build the scale needed for A-Series panels. The company can't afford to spend hundreds of millions of dollars to build production at scale, but sees the value in leveraging a partner to make that investment. We don't know yet what a deal would look like, but if SunPower can start producing A-Series solar panels at a gigawatt scale, it may be possible to get back to consistent profitability, or even growth.
Pushing growth is SunPower's plan
To stay competitive, SunPower has little choice but to find ways to scale its manufacturing technology. The company has shown that its differentiated products sell well in the solar industry, particularly in commercial and residential markets, so expanding production to lower costs and reach more customers should be a big win.
If SunPower can leverage its partnerships to expand manufacturing over the next few years, it could be a solid solar stock once again. It's making progress, but now the rubber hits the road with those growth plans.