Suntech’s Improving Production Costs Support Outlook
Suntech Power (NYSE:STP) boasts of being the world’s largest manufacturer of crystalline silicon photovoltaic (PV) modules shipping 1,522 megawatt (MW) of PV modules in 2010. The company is also China’s largest US-listed solar player by market capitalization. We forecast an almost three-fold growth in its shipment figures over the next 5 years as the company forges ahead with building out its capacity. Looking ahead, Suntech will need to keep an eye on its production costs to ensure profitability with falling prices as it competes with other international solar power giants including FirstSolar (NASDAQ:FSLR), SunPower (NYSE:SPWRA), LDK Solar (NYSE:LDK) and Yingli Green Energy Holding Com (NYSE:YGE).
We maintain a $10.70 price estimate for Suntech Power, suggesting a 35% premium to its current market price.
Production costs halved in last 3 years
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Suntech has worked hard to reduce the production cost of its solar cells from 2.28$/watt in 2007 to 1.20$/watt in 2010. While a significant decline in polysilicon costs has contributed heavily to this fall, the company’s efforts to improve efficiency over this period have also been commendable. Moreover, the company has also capitalized on the benefits of economies of scale from its expanded manufacturing capacity.
Continued improvements expected
Suntech Power continues to enjoy the advantages of the Chinese government’s incentives to local solar industry companies and benefits considerably from the lower cost of labor in the country. At the same time, the company has made significant investments to improve other cost efficiencies.
Its strong research and development capabilities have enabled it to develop advanced process technologies that allow it to manufacture cost effectively and on a large scale. The increasingly popular Pluto cells are a result of the integration of leaner manufacturing process with advanced R&D in solar module technology.
Moreover, increasing capacity in the polysilicon industry will drive down polysilicon prices in the future. This combined with the company’s decision to integrate wafer production will further help manufacturing costs by keeping input prices low.