Has the industry reached a steady state?
I asked Werner if the industry has reached a steady state now that subsidies are falling away and solar power is competing with the cost of electricity from the grid in some locations. He was hesitant to call it a steady state but thinks a winning formula is starting to emerge.
Werner’s view is that companies who can make the transition from selling solar panels to selling energy will be the ones who win in the future. For SunPower Corporation (NASDAQ:SPWR), that means offering solar power, monitoring solutions, and leasing services today. As the industry evolves, we’ll be talking about a complete energy offering including batteries, efficiency optimization products, and a whole suite of solutions from SunPower. This could be sold to a residence or a commercial building, opening a world of possibilities for the companies who can offer complete solutions.
In short, companies who sell energy will be the ones to succeed and SunPower Corporation (NASDAQ:SPWR) is guaranteeing energy production, not just selling panels.
Are European tariffs and the talk of China going “pro-market” a plus for SunPower?
China has taken over much of the solar industry on the back of billions of dollars of loans given by state-run banks. But that’s led to import tariffs in the U.S. and will likely lead to tariffs in Europe starting next month. I asked Werner if these developments were positive for SunPower?
Tariffs on Chinese panels are incrementally positive for SunPower, Werner thinks, but since the business model is shifting to selling energy it isn’t going to be a huge impact on the company.
What’s more important for the industry is that capacity expansion in China has stopped and it appears behavior is changing. It’s no longer just about adding capacity; we’ve now changed focus to balance sheets and systems. For an example of how important projects have become we can look at Canadian Solar Inc. (NASDAQ:CSIQ)‘s earnings announcement just yesterday that touted 400 MW of projects in Canada. Even Chinese companies are beginning to see the value in building and selling energy over just selling modules.
It also appears that the free flow of money to Chinese solar manufacturers has at least slowed. While Werner doesn’t see tariffs as a death knell for Chinese solar, they are incrementally positive for SunPower Corporation (NASDAQ:SPWR) and another positive differentiator for the company.
Is SunPower’s differentiated technology a sustainable competitive advantage?
My investment thesis on SunPower centers on the company’s efficiency lead over modules from China and virtually everyone else in solar. This lead should allow SunPower to install residential and commercial systems for a lower cost of energy than competitors, which will lead to higher margins. But GT Advanced Technologies Inc (NASDAQ:GTAT) says it is releasing equipment this year that will allow for the mass production of cells comparable to SunPower’s, and First Solar, Inc. (NASDAQ:FSLR) recently bought TetraSun, a high-efficiency solar producer. So, can SunPower maintain it’s current lead given these new technologies and any number of new entrants into the market?
This is where Werner reminded me that SunPower Corporation (NASDAQ:SPWR) introduced its current cell design about a decade ago, and to this day no one has been able to build a comparable cell or module at a low enough cost to compete. So, while there is always risk when it comes to technology he is confident the company will maintain a significant lead.
