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Investment Overview for Yingli Green Energy (NYSE:YGE)
Below are key drivers of Yingli Green Energy's value that present opportunities for upside or downside to the current Trefis price estimate for the company:
Rest of the World Photovoltaic modules
- PV Module Gross Margins: Yingli Green Energy leverages its manufacturing operations in China and its vertically integrated structure to produce low cost PV modules. PV Module Gross Margins stood at 38% in 2010 as the decline in manufacturing costs and the cost of raw materials was sharper than the drop in module prices. Additionally, in 2010, the rising volumes also enabled the company to exploit economies of scale. However, things took a turn for the worse in 2011 because of a pull back in solar subsidies in Europe, causing module prices to fall, causing margins to fall to about 23%. In 2012, margins fell sharply to around 7% as average selling prices plummeted further due to tough competition from other Chinese manufacturers and overcapacity in the industry. Margins recovered to levels of above 20% in 2013 and 2014, as module prices stabilized, while non-silicon manufacturing costs continue to decline. We estimate that the company's gross margins will continue to improve over our review period, albeit at a slower pace, rising to about 28%. If the number rises to 35% by the end of our review period, this could result in a 40% upside to our price estimate. On the other hand, if margins decline to about 23%, this could result in a near 40% decline in our price estimate.
- Price per Watt of PV Modules Sold: Yingli's average price per watt fell from $3.88 /watt in 2008 to $1.75 /watt in 2010 and $.77/watt in 2012. However, the rate of decline reduced in 2013 and 2014, with ASPs coming in at $0.67/watt and $0.63/watt respectively, as global solar demand improved while manufacturing capacity and supply remained relatively flat. We expect prices to continue to decline at an annual rate of about 3% through the forecast period, reaching about $0.53/watt. However, if prices actually remain stable over the forecast period, this could result in an over 50% upside to our price estimate. On the contrary, if prices were to decline to about $0.45/watt by the end of the forecast period, this would cause our price estimate to decline by more than 50%.
For additional details, select a driver above or select a division from the interactive Trefis split for Yingli Green Energy at the top of the page.
Yingli Green Energy primarily sells multi-crystalline solar modules that use polysilicon to convert solar energy into electricity. The firm also designs, constructs and sells photovoltaic (PV) solar power systems, primarily in China. Yingli is a vertically integrated manufacturer, producing polysilicon ingots, wafers, cells and modules. The company's manufacturing capacity stands at about 2.45 GW of modules per year.
The The Rest of the World and China PV Modules division are the primary source of value for Yingli Green Energy.
Growth in China and Emerging Markets
Sales to China and the rest of the world segment have been on the uptrend and we believe that they will be the key drivers of value for Yingli 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 world's second largest solar market as of 2014), 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 Yingli 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. Yingli 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.
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.
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.
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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