Tesla's Big Success in China: This Small Company May Make It Happen

JA Solar may play a pivotal role should Tesla succeed in China.

Scott Levine
Scott Levine
Apr 28, 2014 at 2:55PM
Energy, Materials, and Utilities

Tesla's first Chinese supercharging station          Source: Tesla Motors

More often than not, it's the domestic story, not the foreign one, that garners all the headlines. Most recently, it has come in the form of three Federal Trade Commission officials who, in a blog posted on the FTC website last week, slammed legislators and dealerships who have precluded Tesla Motors (NASDAQ:TSLA) from selling its cars directly to consumers. But, the foreign news is also compelling.

What has been reported to a much lesser degree is the speculation that Tesla has chosen a company to help build out its charging infrastructure in China. Reported on a website which, in turn, credited an article from the Shanghai publication Chinese Business News, Tesla has allegedly awarded a contract to JA Solar (NASDAQ:JASO) to help build a Supercharger station in Shanghai.

Casting a net(work) across the U.S.
Surely, not all drivers are trying to push the absolute limits of their fuel tanks (like Kramer's infamous test drive on Seinfeld). Most potential EV drivers have "range anxiety" -- the non-psychiatric disorder in which EV drivers fear that their cars' batteries will run out of charge while away from a charging station. In order to quell this fear, Tesla has made a priority of building out a network of charging stations -- and the crème de la crème of these is the supercharging station.

According to Tesla, a driver who visits a Supercharge can recharge his vehicle 16 times faster than at a public charging station. Having just opened a new station in Hamilton, New Jersey, there are currently 86 supercharger stations across the country, providing coverage on both the West and East coasts. The 14 supercharging stations in Europe bring the company's total network to 100 stations, globally. Tesla's goal is to have 98% of the U.S. population and parts of Canada covered by 2015, at which point the tentative supercharger network would look like this:

Source: Tesla Motors

Driving through China
While Tesla seeks to revolutionize the automobile industry in the United States, Musk has made clear his intentions to do the same thing in China, where there is an overwhelming market opportunity. The Chinese government has set an aggressive goal of having 5 million alternative energy-powered vehicles by 2020. Speaking of aggressive targets, Tesla has stated that its goal is to sell 8,000 vehicles in China this year. 

Last week, Elon Musk, Tesla's CEO, announced his ambition to begin manufacturing cars in China within next three or four years; furthermore, like in the U.S., he is looking to develop a charging network for consumers. "China is very important to the future of Tesla. While talking to reporters in Beijing last week, Musk said, "we're going to make a big investment in China in terms of charging infrastructure." Regarding its Supercharger stations, Musk said that he intends to develop seven Supercharger networks with the first groups scheduled for Shanghai and Beijing.

Which China dolls are possible partners?
Although the rumors are rampant that JA Solar will be a partner in Tesla's endeavors to buildout its charging network, the first company that has received that distinction is Hanergy Solar Group. During a ceremony last week celebrating the delivery of Tesla's first vehicles in China, Musk credited Hanergy with constructing the first charging stations in Shanghai and Beijing. Leaving room for speculation, Musk suggested that Hanegy will not be the only company with whom Tesla works, "In the future, Tesla will work with partners to build Supercharger networks." 

This bears resemblance to SolarCity, another Elon Musk endeavor, which partners with a variety of vendors, thereby affording it the opportunity to secure the most cost-effective solar panels, which in turn helps to defray some of the costs for consumers. 

Although Hanergy Solar's panels top out at an impressive conversion efficiency of 20.5%, the company uses thin-film CIGS panels for the charging stations. The use of thin-film modules, although they typically have higher conversion efficiency, is somewhat frowned upon. The National Renewable Energy Laboratory identifies several areas in which thin-film modules demonstrate potential difficulties: increased risk of mechanical failure due to glass breakage, hot spots leading to mechanical failure, power degradation of the panels, and corrosion and delamination of the panels.

JA Solar, on the other hand, produces mono-crystalline cells which have also achieved efficiency of over 20%. Possibly intimating that there was a major deal in the works, management, in its most recent earnings report, mentioned that it was ramping up capacity to 2 GW for 2014 -- a considerable improvement over the 1.2 GW in 2013.

Foolish final thoughts
Since the news is speculative, investors should be wary about opening (or adding to) positions in JA Solar just based of its possible relationship with Tesla; however, it is an interesting development, and one that should be followed. Regardless, JA Solar does offer some compelling theses for investment, which I have discussed in a previous article, and investors, as always, should dig deeper to see if JA Solar is right for them.