The U.S. Commerce Department imposed tariffs ranging between 2.9-4.73% on Chinese solar panel imports after coming to the conclusion that the Chinese government was providing illegal export subsidies to local manufacturers.  Panels from Trina Solar (NYSE:TSL) will be subject to a 4.73% tariff, while those from competitor Suntech Power (NYSE:STP) will have a 2.9% tariff. Other Chinese companies will have to pay a 3.61% charge on their sales in the U.S. The measure from the Commerce Department has been appreciated by local industry in the U.S. as the charges aren’t high enough to hit local jobs supported by the cheap imports, while providing reasonable protection to U.S. manufacturing. Trina Solar had already taken a charge in Q4 2011 expecting a tariff around these levels. The company is also exploring options to manufacture panels outside of China to circumvent these tariffs. Additional tariffs could be put in place later this year if the Commerce Department decides that China is in fact ‘dumping’ solar equipment in the U.S.
We have a $10 price estimate for Trina Solar, which is more than 25% ahead of the current market price. Once we have been able to fully process the impact that this will have on sales, we may revisit our forecasts for the company.
These tariffs follow a complaint by firms in the U.S. that the Chinese government was supporting local panel companies, which gave them an unfair advantage. Chinese players denied the accusation, but reports have suggested that solar equipment manufacturers in China are aided through cheap loans and other subsidies to help them expand.  The country reportedly has around 40 GW of annual production capacity, which exceeds the total global installation of solar modules last year by 40%. Companies have rapidly expanded manufacturing over the last few years, pulling down module prices globally. Low prices have hurt manufacturers, pushing three U.S. solar companies into bankruptcy last year.
A 4.73% tariff on Trina’s panels could impact the price competitiveness of the company’s modules in the U.S. market. Trina has a 10% market share in the U.S. and benefits from low manufacturing costs, which give it a production advantage over competitors. A 10% drop in our sales estimates for its modules in the U.S. could reduce our price estimate by 2-3%. The company has already hinted at shifting some of its manufacturing outside of China to sidestep tariffs in its last earnings call. We will look at Trina’s sales in the country over the next few quarters to determine the impact of the tariff on its sales.
- Trina Solar: Price Estimate Revised Below $10 on Disappointing Margins (trefis.com)
- Chinese Solar Firms Get a Breather as Import Tariff Ruling is Delayed (trefis.com)