How First Solar And SunPower Could Be Impacted By The U.S. ITC Ruling

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Late last week, the U.S. International Trade Commission issued a preliminary ruling stating that cheap, imported solar panels have been hurting American manufacturers, giving President Donald Trump the authority to impose penalties on the imports of solar products. The ruling stems from a case brought up by two solar equipment manufacturers, Suniva and SolarWorld, who complained that a growing wave of cheap solar imports were putting U.S-based solar companies at risk. In this note, we take a look at the odds that trade restrictions will actually be imposed and what it could mean for First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR), two major U.S. solar equipment manufacturers.

See Our Complete Analysis For Solar Stocks First Solar and  SunPower

Will The White House Impose Penalties? 

Over the next few weeks, the U.S. ITC is expected to make its recommendations to the Trump Administration, which will decide whether or not to impose the penalties, which could include tariffs or minimum import prices. There appears to be a strong possibility that the Administration will favor the penalties, considering the President’s protectionist rhetoric through his campaign last year and his promise to double down on American manufacturing. If penalties are indeed imposed, their magnitude will also be a key factor to watch. While Suniva had asked for tariffs of 40 cents per watt on imported solar cells, along with a floor price of 78 cents per watt on solar modules, it’s likely that the final figure will be much lower, as solar panels sell for as little as 40 cents per watt in the global markets.

There could be significant repercussions if trade barriers are imposed. Penalties on imported panels could drive up their landed cost in the U.S. market, making many solar projects unviable, as the panel cost typically accounts for close to 40% of the project cost. This could result in widespread job losses, as solar companies employ about 260,000 workers, with about 85% of them engaged in rooftop installation and solar project development. There is also a risk that countries that face these tariffs could retaliate by placing duties of their own on U.S. products, leading to a trade war of sorts. For instance, in 2012, China responded to U.S. tariffs on its solar products by imposing its own duties on polysilicon imports from the U.S.

First Solar Could Be A Big Beneficiary If Penalties Are Imposed 

First Solar, the largest U.S solar manufacturer, could stand to gain significantly if the U.S. chooses to erect trade barriers on solar panels and cells. Although much of the company’s manufacturing capacity is overseas (primarily in Malaysia) it uses a different technology called cadmium telluride, and not crystalline silicon, which is the target of the trade case. This could potentially allow the company to circumvent tariffs on its panels, making them more competitive versus other manufacturers. This may give First Solar a window of opportunity to bolster its volumes and margins in the U.S. market before other manufacturers move plants to the U.S. to bypass potential trade barriers.

SunPower, on the other hand, uses silicon-based panels, most of which are produced at factories in Malaysia, Mexico and the Philippines – putting the company at risk if the penalties are imposed. SunPower actually has plans to grow more reliant on Chinese multi crystalline-based cells as it looks to scale up production of its low-cost P-Series modules to as much as 5 GW, and there is a possibility that an unfavorable decision from the White House could impact the company’s plans (related: How SunPower’s 5 GW Chinese Joint Venture Can Add Value).

That said, the uncertainty surrounding the trade barriers could prove positive for solar manufacturers in the near term. Project developers in the U.S. have been purchasing panels early and storing them for future use, as they look to hedge against any potential tariffs and protect the financial viability of their future projects. This has led to a run-up in panel prices, and it’s possible that the trend could continue in the near term until the White House comes out with its final decision.

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