The whole solar panel industry has been in a tailspin as the massive solar glut takes toll of the whole industry. The industry downturn which started in 2011 has not stopped as solar panel prices have crashed to new all time lows with European demand pull in ending and inventories building up. While many of the solar panel companies have gone bankrupt, many of the high cost industry dinosaurs continue to live surviving on the generosity of their home governments. Not only China, but also other countries like France, Italy, USA have perpetuated the oversupply and distorting of solar economics. However the Market has started asserting its power with the badly managed, over indebted solar companies showing greater distress and bigger losses.
While the better managed ones are increasing marketshare and showing resilience, the worst companies like LDK and Suntech are close to failure. The YTD stock performance has started to reflect the realities with some of the good companies like Renesola showing a massive out-performance compared to the worst ones like LDK (75% return of SOL long compared to LDK short). Canadian Solar has also been a notable out-performer as it has gained a massive amount of marketshare at the expense of other top solar panel manufacturers like Suntech.
The earlier article on GWI for selecting Solar Stocks in 2012 has been working well.
So what are the criteria for staying alive in 2012
a) Government Support in Some Form – Most of the Tier 1 Chinese Solar Companies will fall into this bracket. However given that there are so many, you would have to look at the biggest like Suntech, LDK, Yingli for survival in any case. LDK is a BANKRUPT COMPANY, the only reason it continues to produce a solar panel is because of the Chinese Government support.
b) Low Cost – Though seems like an obvious idea, there are still companies existing which have high costs like Q-Cells, REC. You just can’t invest in them given that even low cost is a necessity though not sufficient condition to survive.
c) Branding – Very necessary to get financing for solar projects as without a brand you are not bankable and will have to sell at a 10% discount in a market which is already selling at below cost.
d) Efficiency and R&D Dollars – If you sell a low efficiency multi-crystalline solar panel, then you are toast given that the market is now only looking at higher efficiency stuff given that choice that buyers have. You also need to spend sufficient R&D dollars to get ahead of the competition in reducing costs and increasing efficiency. Smaller solar companies are at a disadvantage here.
f) Low Debt – Not Necessary if you are LDK and have a Sugar Daddy like the Chinese Development Bank but very important for every other solar company. Trina Solar shines in this respect, Suntech does not.
The survivors of the solar consolidation will see the low cost, low debt players thrive and grow when the huge legacy capacities of the weaker players like LDK, Suntech are eventually taken out. Other big high cost players in Europe and Japan like Solarworld and Sharp are too showing signs of bankruptcy with their share prices flirting with new all time lows.