Solar manufactures are struggling with commoditization. U.S. manufactures have been fighting to stay alive and compete with low-cost Chinese panels subsidized by Beijing. Going forward one major factor that will help U.S. manufacturers beat their competitors is R&D spending. Even with access to cheap capital, Chinese manufactures have consistently spent less than their U.S. competitors on R&D, thus stunting their long-term growth possibilities.
Annual R&D Spending
| SunPower (U.S.) | First Solar (U.S.) | Yingli (China) | Suntech (China) | LDK Solar (China) | |
| 2012 | 63.5 | 132.5 | 30.1 | 17.8 | |
| 2011 | 57.8 | 140.5 | 45.3 | 38.6 | 46.5 |
| 2009 | 49.1 | 94.8 | 20.7 | 40.2 | 10.8 |
(All numbers in millions of $)
R&D spending counts
Goldman Sachs recently looked at the correlation between R&D spending and stock returns, and the company found a very strong link. It focused on large companies in the tech, biotech, and Internet industries, and Goldman Sacks’ findings are relevant for technologically advancing industries like solar manufacturing.
The U.S. players
SunPower Corporation (NASDAQ:SPWR) proudly announces that its R&D spending has allowed it to create panels that are very efficient and degrade slower than other panels. Based on studies in late 2012 and early 2013, the company estimates that with its X-Series panels customers can gain up to 75% more energy per square foot over the first 25 years of use compared to their competitors’ panels. With continued investments in R&D, the company hopes to boost its X-Series’ efficiency to 23% by 2015.
SunPower Corporation (NASDAQ:SPWR)’s investment in high-efficiency technology is paying off. Between the first and second quarter of 2013 it was able to decrease inventories by $46 million and post positive net income, thanks to strong global sales growth. SunPower’s long-term future is also looking bright. As of May 2013 it had a 3.1 gigawatt pipeline in the Americas and a 1.5 gigawatt pipeline in the Middle East and Africa.
Solar panels face a trade-off between cost and efficiency. In the past First Solar, Inc. (NASDAQ:FSLR) tried to gain market share by offering low-cost products, but Beijing’s decision to create a plethora of Chinese manufacturers financed by cheap state capital put First Solar on the defensive. For First Solar to step up its game and offer products that are more competitive on the basis of total system cost, it has been heavily investing in R&D. It just signed a special partnership with General Electric specifically to improve efficiencies.
It will take time for First Solar, Inc. (NASDAQ:FSLR) to bring its latest R&D advances to its products, but over the next couple years its partnership with GE should improve the company’s bottom line. In the long run SunPower Corporation (NASDAQ:SPWR)’s high-efficiency panels will continue to help it conquer the rooftop market while First Solar’s lower-cost and lower-efficiency panels are better suited for traditional utilities.
Both First Solar, Inc. (NASDAQ:FSLR) and SunPower Corporation (NASDAQ:SPWR) are interesting investments. On the surface First Solar looks less risky with its small debt load and total debt-to-equity ratio of 0.06, compared to SunPower’s 0.95. It is important to remember that SunPower is majority owned by the French oil giant Total, so the company has more room to play with its balance sheet.
The other side of the coin
Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE), Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP), and LDK Solar Co., Ltd (ADR) (NYSE:LDK) are all Chinese manufactures that are reaping the fruits of too much money. The Chinese industry expanded production for far too long, driving some firms like Suntech into bankruptcy. Suntech is trying to stage a comeback, but among other issues its R&D budget simply cannot compete with the spending of its bigger competitors.
