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Investment Overview for Yingli Green Energy (NYSE:YGE)
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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. Yingli's PV Module Gross Margins increased from around 26% in 2008 to around 35% in 2010 as the drop 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, hitting margins across the supply chain. In 2012, margins fell sharply to around 7.41% as average selling prices plummeted further due to tough competition from other Chinese manufacturers and overcapacity in the industry. While the oversupply situation could continue in the near term, we expect the gross margins to gradually increase to around 25% by the end of the Trefis forecast period as the firm improves utilization levels and as average selling prices stabilize. However in the event that selling prices fall,and gross margins only increase to around 22% by the end of the Trefis forecast period , this could cause a 75% decline to our price estimate.On the other hand, if margins were to improve to around 27.5%, then we could see a 67% increase in the Trefis 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. We expect prices to stabilize at these levels through the end of the Trefis forecast period. However, if prices actually increase to around $1/ watt by the end of the period, the Trefis price estimate would see an upside of nearly 200%.
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.
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Yingli Green Energy is a vertically integrated manufacturer and seller of multi-crystalline and mono-crystalline solar modules that use polysilicon to convert solar energy into electricity. The firm also designs, constructs and sells photovoltaic (PV) solar power systems that combine modules into a power system, primarily in China.
Yingli was the world's first vertically integrated manufacturer and it has expanded its production capacity across the three stages of its value chain in tandem. The company 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.
At the end of 2010, the capacity of all three of Yingli's stages stood at 1 GW and is expected to exceed 2 GW in the near future. The systems business uses modules to set up solar plants that generate electricity, which is in turn sold to utility firms.
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The German PV Modules division is the primary source of value for Yingli Green Energy
Growth in markets outside Germany
In 2010 and 2011 Germany contributed around 624 MW and 723 MW worth of PV module sales compared to 221 MW and 523 MW by the Rest of The World. Yingli is more focused on the European market than some of its competitors like Trina Solar. As other countries adopt solar energy as an alternative means of generating electricity and Yingli is forced to diversify away from European markets like Germany, PV module sales in other countries such as China, India and the Middle East are expected to rise.
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Legislature to aid renewable energy projects
As solar power has still not reached grid parity, investors depend on government subsidies to earn a competitive return on their projects. Governments all across the world have taken measures to encourage the use of solar technology as a way to help them reduce their dependence on fossil fuels. The U.S. government's Emergency Economic Stabilization Act of 2008 provided tax credits to investments made in alternative energy projects. Similarly the American Recovery and Reinvestment Act of 2009 provides tax incentives worth 30% of the total cost of installation. Government subsidies and tax credits have enabled renewable energy companies like First Solar to thrive. Recent initiatives taken by the government require that in at least 30 states, public utilities will be required to generate a portion of their output from alternative energy in the coming years. However with budget constraints, governments are being forced to cut down on subsidies and we expect that many incentives will not be renewed.
Australia’s PV market has been largely driven by demand in the residential sector, with approximately 80% of the installed capacity being used for residential use. As a significant portion of the country’s electricity is generated through cheap coal, the solar market growth has been quite steady in the past. Australia has an installed capacity of almost 1.03 GW in August 2011 and plans to meet 20% of its power demand from renewable resources.
Countries such as China and India are also embarking on large programs to boost solar power generation in the future. Pilot projects in the Middle East are also being undertaken to test the feasibility of solar power generation in these high solar irradiation geographies.
Impact of the economic crisis
The global economic crisis has 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 as it is crucially dependent on capital expenditures. The economic crisis impacted demand for everything from polysilicon to rooftop panels. Additionally many governments have had to slash subsidies in order to reduce budget deficits. 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. As the market is highly competitive, efficiency and innovation are key for solar companies going forward.
Trefis Forecast Rationale for Yingli's Rest of World PV Module Gross Margins
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This represents Yingli's gross profits in the PV module market, expressed as a percentage of revenue.
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${forecast} increased from 2008 through 2010 as the drop in manufacturing costs and the cost of raw materials was sharper than the drop in module prices. In 2008, margins for the PV modules business stood at 23.3% and then rose slightly to 23.75% in 2009. In 2010 margins rose sharply as volumes rose, enabling the company to exploit economies of scale.
Because of a pull back in solar subsidies in Europe, module prices saw a drastic fall in 2011 hitting margins across the supply chain. The oversupply situation is expected to continue over the next few years, and as such we expect margins to decline through the end of our forecast period.
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Trefis considered the following factors in its analysis:
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- Falling cost of raw materials.
- Polysilicon is the major component in the production of multi crystalline PV modules. The polysilicon market has seen a sharp fall in prices because of an oversupply situation.
- Around 90% of polysilicon demand comes from the solar PV industry and therefore the price of the material depends on the derived demand from PV module sales. As the demand for modules rose, polysilicon prices increased from $33/kg in 2003 to $475 in 2008 but fell again in 2011 to below $50 as module demand fell.
- Polysilicon prices have declined as a result of oversupply in the market. Polysilicon production is expected to outstrip demand by nearly 30% over the next few years as total capacity is expected to jump from 131,000 tons in 2010 and 266,000 tons in 2011 to 500,000 tonnes in 2014.
- Cost advantage from China-based operations, vertical integration
- Yingli has its operations based in China which gives it a considerable cost advantage over other players. Yingli also has a vertically integrated manufacturing process which gives it a strong cost advantage.
- Increased production efficiency
- Yingli has begun production of its Panda mono-crystalline technology, which is the highest-efficiency product launched by the company to date.
- Higher efficiency cells should help differentiate the company's products and also keep costs low.
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- Falling prices put pressure on margins.
- Module prices have fallen sharply over the last few years because of increasing efficiency in production in addition to the recent module oversupply.
- Falling prices are putting pressure on manufacturers' margins as cost-cutting actions haven't been able to keep pace with price declines.
- Long term polysilicon contracts
- While polysilicon prices are declining rapidly, 90% of the market is covered by long-term contracts which will prevent Yingli from immediately benefiting from the lower raw material costs.
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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.
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