Yingli Panda solar panel. Source: Yingli Green Energy.
The last week has brought some mixed data from the solar industry, and I think it's time to take a step back and look at what's really going on in the industry.
Trina Solar (NYSE: TSL) and Yingli Green Energy (NYSE: YGE) have said that solar shipments would be lower than expected in the first quarter while at the same time announcing that margins would be up. Today, JA Solar (NASDAQ: JASO) said its shipments will be higher than expected and margins will be up.
While it's important for companies to meet guidance to reassure investors they understand their business demands, it's also important to look at what these mixed numbers really mean.
The first thing to understand is that while shipments won't hit expectations, they're not falling versus a year ago. Trina Solar and JA Solar will both see a sharp increase in shipments year over year and Yingli will likely post shipments that are about flat with a year ago.
|
Q1 2013 Shipments |
Q1 2014 Guidance |
Q1 2014 Actual |
Actual Shipment Growth | |
|---|---|---|---|---|
|
Yingli Green Energy |
649 MW |
705+ MW |
Less than 658 MW |
Less than 1.4% |
|
Trina Solar |
393 MW |
670-700 MW |
540-570 MW |
37%+ |
|
JA Solar |
442.7 MW |
580-610 MW |
620+ MW |
40%+ |
Source: Company press releases.
Overall, solar installations were up about 35% in the first quarter to 9 GW so demand is high, but expectations just got ahead of what these companies could deliver, except for JA Solar's more realistic guidance.
On the margin side, we're seeing even better performance. The increase in demand has resulted in higher module prices and therefore higher margins.
|
Q1 2013 Gross Margin |
Q1 2014 Gross Margin Guidance |
Q1 2014 Actual Gross Margin | |
|---|---|---|---|
|
Yingli Green Energy |
4.1% |
14%-16% |
15.5%-16.5% |
|
Trina Solar |
1.7% |
mid-teens percent |
18%-20% |
|
JA Solar |
6% |
n/a |
15.5%+ |
Source: Company press releases.
The improving margins mean Trina Solar and JA Solar should post another profit for the quarter and Yingli will see a big improvement from a year ago.
Perspective is needed in solar
Guidance can often be tough in a market moving as fast as solar, particularly when policy changes happen rapidly, as they have in Europe, China, and the U.S. The good news is that demand is growing long term and margins are growing as well. That makes for stronger solar manufacturers and a much better investing environment.
I'd still keep my money in high-quality companies with strong balance sheets because even Yingli Green Energy's numbers show that companies with high debt are risks that installers aren't willing to take these days.
