Trina Solar (NYSE: TSL) is not as well known as SunPower (SPWR 7.73%) or First Solar, and definitely not as known as SolarCity, despite being one of SolarCity's primary suppliers of low-cost solar panels. While SunPower and First Solar are considered leaders in technology, Trina is viewed as little more than a low-cost leader, making reliable panels that sacrifice efficiency for lower cost.
However, the company just announced what it's calling High Efficiency Honey Ultra, a module that purportedly has a 24.4% efficiency rating. Considering that its current panels operate at around 16% efficiency, and SunPower's industry-leading panels are closer to 21% -- almost 32% more power output per panel than Trina's -- this could be a remarkable breakthrough for the company, if it could translate that module efficiency to a panel efficiency near 20%.
Should investors load up on Trina today? Let's dig a little deeper.
Trina's current Honey M model. Source: Trina Solar.
Is Trina for real?
When I first read the press release, I immediately contacted Trina's investor relations to get more information. My only question: When is this coming to market?
Investor relations confirmed that Trina would start commercial production later in 2014, but the launch date is still to be determined due to a number of factors like certifications in different markets and agreements with resellers. And while efficiency is only one metric to rate solar panels on -- by nominal power, SunPower's X-Series still produces more power at 335 watts -- this is a major leap forward for Trina. The new Honey Ultra produced 326 watts under test conditions, substantially more than the 285 watts from the Honey M series currently for sale.
But here's what really matters:
- What will these panels produce when they come to market?
- What will they cost per watt?
SunPower's X-Series rate better (based on wattage) than Trina's Honey Ultra, so price will still matter. Source: SunPower.
SunPower will remain a leader: Trina must prove itself
I've wavered a little on Trina in the past, both being positive but more recently neutral on its chance of being a market-beating stock. My position has largely been based on the company's position as a player in the low end of the business, where panel price is a bigger driver than performance. However, if the company is able to bring its Honey Ultra panels to market at a competitive price, it could largely expand the opportunities that it could participate in, such as large-scale solar utility projects that need to maximize output in the available space.
Additionally, SunPower is renowned for maintaining high efficiency rates for the panels over time. While some low-cost panels can lose as much as 25% of their output capacity over the 20-25 year life of a panel, SunPower's panels only lose -- so they claim -- about 10%. This adds significant value, especially for utility-scale customers that will be depending on consistent and predictable levels of power generation. Trina needs to show that it can also make panels that are not just efficient today but remain so for decades.
Better value or just cheaper?
In this case, I'm not talking about solar panel costs. Which company would be a better investment? As fellow Fool Travis Hoium recently wrote, solar is set to keep growing like crazy. And with shares having fallen across the industry recently, it does look like the market has opened up a buying opportunity. Here's a look at the forward (meaning consensus estimates) price-to-earnings ratio for Trina, First Solar, and SunPower:
TSL P/E Ratio (Forward) data. Source: YCharts.
As you can see, First Solar and SunPower carry a premium versus Trina's commodity business. There's probably also a discount due to Trina being a Chinese company, considering that the Chinese government's subsidy program severely damaged the industry for more than a year. But the reality is, much of the price discount is due to the much thinner margins that lead to Trina being less profitable than the two technology leaders. Simply put, Trina is cheaper, but SunPower is the technology leader. And that technology has value that the company can use to create better margins.
Prove it, Trina
It's possible that Trina is onto something that could open it to a brighter future, but until we have more evidence that this is the reality, there's little to bank on just yet. SunPower, however, is in a fantastic position both with its technology and its partnership with majority shareholder and Energy giant Total SA, which opens doors to even more potential business than SunPower could find on its own.
If I'm buying today, SunPower's strengths are hard to ignore. Trina? I'd say it needs to show that it can play with the big boys first.
