Yingli Q2: Margins Rise, Shipments Surge On Chinese and U.S. Demand

by Trefis Team
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Yingli Green Energy (NYSE:YGE) released its Q2 2013 results on August 30, displaying a strong set of numbers. The company’s quarterly revenues grew about 27% sequentially to around $550 million aided by higher average selling prices for solar modules as well as surging shipments to markets such as China, the United States and Japan. Net losses narrowed to around $52 million from around $98 million in the first quarter thanks to the higher utilization rates and lower non-silicon based costs. [1]  The outlook for the rest of the year also looks promising as the company expects its factories to run at well above capacity for this year with margins slated to improve further.

We have revised our estimates for Yingli, which you can read about in our note Revising Estimates On Yingli Green Energy’s Brighter Outlook. Here is a brief look at some of the factors that impacted the company’s earnings this quarter.

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Demand From China

Yingli’s module shipments hit an all time quarterly high rising by around 23.6% sequentially. [2] The firm also said that it has seen a 4% increase in average selling prices since the last quarter. Sales to China surged accounting for around 27% of the company’s overall shipments as demand from large solar projects in the country increased.

China is poised to become the world’s largest market for solar products this year. The country’s State Council has outlined plans to quadruple solar power capacity to around 35 gigawatts (GW) by 2015, translating to an addition of nearly 10 GW of capacity each year between 2013 and 2015. The higher demand from China also reflected positively on Yingli’s selling prices in the Chinese market, which grew by roughly 10% through the first half of the year. The utility scale solar market in China is also poised to grow on the back of a relatively attractive feed-in-tariff of about RMB1 ($0.16). The company said that it has been expanding its downstream solar business in the country and already has a project pipeline of around 500 MW to be executed over the next two years.

Utility Scale Projects Drive U.S. Sales

The company also did well in the United States with shipments in the region accounting for nearly a quarter of total shipments this quarter. More than 70% of the company’s shipments to the U.S. this year have been directed at the utility scale market. Multicrystalline panels, such as those manufactured by Yingli, are likely to be hitting the sweet spot at the moment in terms of a price to performance trade-off, particularly for large solar power plants. Multicrystalline panels offer efficiencies that are slightly higher than thin-film panels at prices that are currently lower than both thin-film and monocrystalline based panels. While the U.S. utility scale market is very competitive and pricing could be an issue due to the duties that Yingli and other Chinese manufacturers are subject to, we believe that the company’s progress has been reasonably good nevertheless. The company’s outlook remains strong for the U.S. market with volumes slated to grow by at least 150% year over year in 2013.

Gross Margins Will Trend Higher As Shipments Set To Exceed Manufactruing Capacity

Yingli saw its gross margins increase to around 11.8% this quarter, up from about 4.1% in Q1 2013. Non-silicon production costs fell from around $0.47 per watt to about $0.45 per watt. Manufacturing costs for solar panels can be broadly classified as silicon costs and non-silicon costs. We estimate that silicon costs, which include the price of the polysilicon used in manufacturing wafers, account for about 20% of the company’s direct manufacturing costs while non-silicon costs, which include other direct production costs such as other raw materials, production overheads and manpower account for the remaining 80%. We believe that the firm has further scope to cut down on its non-silicon costs given its rising utilization. Yingli has guided shipments of between 3.2 GW and 3.3 GW of panels this year, which exceeds its in-house nameplate manufacturing capacity of about 2.45 GW. The company doesn’t expect to expand capacity in the near term, indicating that it could run its existing facilities at up to 30% above capacity while it would source the remaining cells from external vendors. Given the better utilization trends and stabilizing pricing, the company has indicated that gross margins could touch 15% by the fourth quarter of  2013. [3]

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Notes:
  1. Yingli SEC Filings []
  2. Yingli Earnings Presentation []
  3. Seeking Alpha []
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