How SunPower’s 5 GW Chinese Joint Venture Can Add Value

SPWR: Sunpower logo

Earlier this year, SunPower (NASDAQ:SPWR), the second largest U.S. solar manufacturer, signed an agreement to restructure an existing joint venture with two Chinese companies, enabling it to scale up manufacturing capacity for its P-series modules to as much as 5 GW per year. The move should help SunPower drive down costs for the panels, which are targeted at price sensitive markets, while giving it access to the massive Chinese solar market. Below we take a look at some of the key factors driving SunPower’s Chinese play.

We have a $8 price estimate for SunPower, which is roughly in line with the current market price.

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Exposure To China

The JV currently currently operates a 1.2 GW mono-PERC cell fab that manufactures cells that SunPower will use for its 19% efficient P-Series panels that will launch during the second half of this year. Now with the new agreement signed in February, SunPower will help the joint venture establish 21 production lines that will eventually have 5 GW of capacity, using its P-Series technology. The facility, which will be located in Jiangsu Province in China, will use a mix of internal and third-party solar cells. Both SunPower’s JV partners bring to the table a significant amount of experience in the Chinese market. The first partner, Dongfang Electric Corporation (DEC), is a major power generation equipment supplier and a major global power plant player. The other partner, Tianjin Zhonghuan Semiconductor, is one of the world’s largest suppliers of mono-crystalline wafers. SunPower expects about a third of the output from the facility to be sold in the Chinese market, while the rest will be shipped overseas.

Moving Further Down The Cost Curve

P-Series panels are cheaper to produce compared to modules that use SunPower’s back-contact technology, and they are targeted primarily at emerging solar markets and also at the utility solar space. The modules are produced using commodity solar cells that are available in the mass market, while utilizing a proprietary interconnection technology to improve efficiency and performance. Unlike conventional panels, in which cells are placed side-by-side and connected with wires, P-Series cells are arranged in the shingle structure similar to roofs, allowing a fixed module area to utilize more cells so that the total power output is enhanced.  As the JV will be located at the heart of a low-cost Chinese solar supply chain, with its low cost third-party cells and other inputs, it could help to reduce costs and improve economies of scale.

Reducing Investment Risk

SunPower has been focusing on reducing capital intensity as it looks to conserve cash, while addressing a maturing solar market. The new P-Series panels have been core to this strategy, as the firm has indicated that they have capital expenditures of under $0.10 per watt, compared to previous plants that cost as much as $0.60 per watt. The lead times for capacity build-out for P-Series also stand at just about six months. The overall risks will be mitigated further by the fact that the latest expansion comes as a joint venture in the low-cost Chinese environment. This should allow the firm to efficiently scale up P-Series capacity, which stood at 400 MW in Q1, to a multi-giga watt scale.

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