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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:
Rest of the World Photovoltaic modules
- Trina Solar's Gross Margins: Trina Solar is one of the cheapest manufacturers of polysilicon modules. Trina Solar's gross margins increased from about 24% in 2008 to over 33% in 2010 due to cost declines. However, the severe supply glut in 2011 resulted in eroding margins for manufacturers and Trina's margins for the year were around 19%. Margins fell further to around 14% in 2012 although they recovered to around 19% in 2013 on the back of improving panel prices.
We expect that margins will improve further over the long-term as manufacturing costs go down and also as the company increases its focus on the solar projects space. However if the company isn't able to decrease production costs on an absolute basis and it is unable to get gross margins to exceed 22% by the end of the Trefis forecast period it would result in a downside of over 20% to the Trefis price estimate.
- Price per Watt of PV Modules Sold: The average price per watt has decreased from around $2.12 in 2009 to about $0.69 in 2013. While panel prices have been stabilizing of late, the company has also been ramping up its presence in the solar projects space, which should help average selling prices increase in the long term. We expect prices to increase to around $0.86 per watt by the end of the Trefis forecast period. However, if prices rise to over $1 per watt it could result in a 15% upside to the Trefis price estimate. On the other hand, if prices remain stable at around $0.70 per watt, this could result in a 15% 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. It now manufactures polysilicon ingots in-house. These ingots are long solid blocks of polysilicon material that are cut into thin wafers from which cells are made These cells are finally converted into PV modules by covering the cells with a coating material for protection.
The ingot manufacturing segment of the company has the capability to produce mono crystalline ingots with silicon crystal growing furnaces as well as multi-crystalline ingots which differ slightly in their structure. The wafers, cells and modules divisions convert the ingots into modules . The module manufacturing division uses these cells in the manufacture of solar modules which it sells to solar project developers and system integrators.
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
Sales to China and the rest of the world segment have been on the up-trend and we believe that they will be the key drivers of value for Trina Solar given that China is now the world's largest solar market, with installations expected to remain strong through the year 2020. Other countries such as Japan, 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.
Legislature 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. Besides this, 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.
However of late, most of the new solar incentive programs announced have been from emerging markets such as China and other places like Japan. Government subsidies and tax credits have enabled renewable energy companies like First Solar to thrive. While governments have been cutting back subsidies of late, we expect subsidies in many countries to remain in place in order to encourage further growth in the industry.
Impact of the economic crisis
The global economic crisis had a profound 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 which has led to consolidation in the industry.
Innovation in solar technology
The PV industry has seen strong growth over the past few years and the total number of solar cells produced globally has increased by over seven times in the past five years. Installation of PV systems has also increased sharply during this period. Solar companies are continuously working to improve current technology, reduce costs and make systems more efficient. PV module efficiency and costs are drivers for most of the PV power plants; therefore technological advancement and innovation are key to solar players' success.
Supply Demand Rationalization
Solar panel prices have seen a continual decline over the last several years, as new capacity expansions led to a glut in the global markets. For instance, in 2013, while global solar capacity was estimated at about 45 GW, demand was well below 40 GW. However, things could change going forward as effective manufacturing capacity is expected to remain stagnant in the near term, as companies have been curtailing expansion projects. During 2013, spending on photovoltaic manufacturing equipment fell to an 8-year low of around $1.73 billion down from a peak of about $13 billion in 2011. However, demand is expected to grow at a healthy rate rising to as much as 49 GW in 2014. This could bring bring about better pricing in the markets.
Growth in Emerging Markets
Europe and developed nations are not the only ones taking the lead in the solar industry. China is expected to become the largest market for solar panels in 2013, with an installation target of nearly 10 GW per year between 2013 and 2015. Japan is also looking to add solar capacity rapidly over the next few years as it seeks to diversify its energy mix away from nuclear power. Japan is expected to become the worlds second largest solar market in 2013.
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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