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Investment Overview for Trina Solar (NYSE:TSL)
Below are key drivers of Trina Solar's value that present opportunities for upside or downside to the current Trefis price estimate for Trina Solar:
China Photovoltaic Modules
- Trina Solar's Gross Margins: Trina's margins fell from around 19% in 2011 to about 14% in 2012, as ASPs declined across the industry amid a glut of solar panels. The number recovered marginally to about 18% in 2013, before rising further to levels of above 20% in 2014 and 2015, driven by a favourable sales mix for modules and also due to the sale of some of the company's large-scale solar projects overseas. We expect that margins will improve slightly over the long-term to about 23% as manufacturing costs go down and also as the company increases its focus on the solar projects space. If margins were to rise to about 26% by the end of our review period, this would result in a 20% upside to our price estimate. However if the company isn't able to decrease production costs on an absolute basis or if it faces stronger competition, causing its margins to decline to levels of under 20% by the end of the forecast period, it would result in a downside of about 20% to our price estimate.
- Price per Watt of PV Modules Sold: The average price per watt has decreased from around $1.35 in 2011 to about $0.69 in 2013 owing to increasing supply and stronger competition in the global solar markets. The decline was much less pronounced in 2014 and 2015, with the price per watt standing at roughly $0.68 and $0.63 respectively, driven by stronger global demand and the company's growing presence in the solar projects space. We expect prices to stabilize at around $0.60 per watt by the end of the Trefis forecast period, driven by an increasing mix of solar systems sales. However, if prices rise to over $0.75 per watt it could result in a 25% upside to the Trefis price estimate. On the other hand, if prices decline to about $0.50 per watt, this could result in a 25% downside to the Trefis price.
For additional details, select a driver above or select a division from the interactive Trefis split for Trina Solar at the top of the page.
Trina Solar manufactures and sells multi crystalline solar modules, which use polysilicon to convert solar energy to electricity. The firm also designs, constructs and sells photovoltaic (PV) solar power systems that combine modules into a power system. In order to secure inputs to its module manufacturing business, the company has expanded upstream over the past few years. As of December 2015, the company held 5 GW of module manufacturing capacity, 3.5 GW of cell manufacturing capacity, 1.7 GW of wafer manufacturing capacity and 2.3 GW of ingot capacity.
The China Photovoltaic Modules and Rest of the World Modules division's are the primary source of value for Trina Solar.
Growth in China and Other Markets
Trina Solar's sales to China have been on the up-trend and we believe that the market will be a key driver of value for the company over the long-term. China is now the world's largest solar market, driven by the need to reduce air pollution caused by fossil fuel generation and also due to the country's growing electricity demand. The country is targeting about 15 GW of new solar capacity for 2016. Although this marks a decline from 2015, it still amounts to about a quarter of global solar demand. Other countries such as the Middle East and India which are included in the Rest of the World Modules segment are also expected to witness high installation growth rates. For example, India plans to increase its cumulative installed solar capacity to as much as 100 GW by 2022, from levels of under 10 GW as of 2015.
Legislation to aid renewable energy projects
Governments all across the world have taken measures to encourage the use of solar technology as a way to help them remove their dependence on fossil fuels. For instance, in the United States, at the Federal level, the government offers incentives including an investment tax credit (ITC) of around 30% on the initial cost of a solar system. The credit, which was slated to decline in from 2017, was extended by U.S. Congress in December 2015. Under the new legislation, the 30% credit will be extended for another three years, dropping incrementally to 22% by 2021, while remaining at 10% permanently beginning in 2022. There is also legislation at the state level, such as the renewable portfolio standards, that require utility companies to generate a certain portion of their electricity from renewable sources. Countries such as China and Japan also offer incentives in the form of feed-in-tariffs that allow photovoltaic plants to sell electricity for above market rates.
Possibility of oversupply in the near-term
While the solar industry has seen a about two years of relative supply-demand balance, there is a possibility that supply could outstrip demand in the near-term, considering the significant manufacturing capacity expansion that the industry is witnessing.
Global manufacturers announced capacity expansions (cell, module and thin film) to the tune of 49 GW over Q4’15 and Q1’16, according to research firm PV Tech. This marks a significant jump over capacity expansion announcements of just about 16 GW in the year ago period. Seperately, there are some concerns that demand could plummet in China during H2 2016, given the expiry of some feed-in-tariffs in late June. This could potentially hurt pricing and margins for solar companies in the near-term.
Trina Solar's capacity constraints
Trina Solar presently faces some manufacturing capacity constraints. For instance, Trina’s module production capacity is slated to grow from 5 GW in 2015 to 6 GW by the end of 2016, while its shipments are projected to rise to as much as 6.55 GW for the year. While the company has been sourcing panels from third parties in order to meet the shortfall, the company is also working to expand cell and module manufacturing capacity overseas. For instance, in 2015 the firm announced that it would establish a 700MW PV cell manufacturing facility and a 500MW module production line in Thailand. The company is also planning to set up 1 GW of cell and 1 GW of module manufacturing capacity in India.
Consolidation within the industry
The global economic crisis had a significant impact on the solar industry. The rise in energy prices prior to the economic downturn led many solar manufacturers to increase capacity. This helped certain manufacturers as they benefited from economies of scale which in turn helped reduce prices. However, due to the credit contraction that occurred during the financial crisis, the installation of solar power systems declined significantly. The economic crisis impacted demand for everything ranging from polysilicon to rooftop panels. As a result, many smaller players with weak balance sheets have been struggling and this has led to consolidation in the industry. The effect of this has been more profound in China, where many solar players are very highly leveraged.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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