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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 increase to around $0.66 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 $0.80 per watt it could result in a 25% upside to the Trefis price estimate. On the other hand, if prices remain stable at around $0.63 per watt, this could result in a 10% 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
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. China has a target of 35 GW of installed solar capacity by 2015, driven by the need to reduce air pollution caused by fossil fuel generation and also due to the country's growing electricity demand. 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. For example, India plans to increase its 2 GW of installed solar capacity as of 2014 to about 20 GW in the medium term.
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. While governments in some regions such as the E.U. have largely cut back on subsidies owing to fiscal concerns, subsidies in developing solar markets largely remain in place. 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 such as Trina Solar to thrive.
Consolidation within the industry
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 and this has led to consolidation in the industry. Trina has been a beneficiary of the consolidation as it has been able to expand its manufacturing relatively cheaply and quickly by forging joint ventures to access manufacturing facilities while also taking over operations of smaller and weaker solar companies.
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 50 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 reasonably healthy rate, rising to about 60 GW in 2015, according to Bloomberg New Energy Finance. This could help to stabilize pricing going forward.
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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