Why The Migration To NGT Technology Is Crucial For SunPower

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SunPower (NASDAQ:SPWR), the second-largest U.S. solar equipment manufacturer, has significantly underperformed the broader solar indices over the last few years, on account of its exposure to the underperforming power plant market, where it was unable to compete with mass-market solar panels. Now, the solar market appears to be shifting towards another phase of oversupply and weak pricing, particularly in the power plant market, due feed-in-tariff cuts in China, which are likely to slash the country’s forecast capacity by 40%, to 28.8 GW from 48 GW this year. Considering this, SunPower has indicated that it would be increasingly focusing on the distributed solar space, where it has an inherent competitive advantage, while introducing a new generation of panels dubbed NGT, which could allow it to compete more directly with mass-market panels.

We have created an interactive dashboard analysis on what to expect from SunPower in 2018. You can modify the charts to arrive at your own estimates for the company’s revenues and EPS.

Why The Migration To NGT Technology Is Crucial For SunPower

SunPower has traditionally led the solar industry in terms of conversion efficiencies, essentially meaning that its panels produce more power for a given size. However, its panels were priced at a significant premium to mass-market panels, limiting its market size to more developed markets and specific applications such as rooftops, where space is a constraint. However, SunPower is working on rolling out its next-generation solar panels with its Next Generation Technology (NGT), which are likely to offer efficiencies of around 23% (roughly in line with its top-end X-Series panels), although costs are likely to be between 30% to 40% lower. SunPower expects these panels to compete head-on in terms of price with the mono-PERC solar panels, which are widely available in the market today while offering higher performance and durability. The company indicated that it is able to achieve these cost reductions by using larger wafers (which increase the number of watts of power delivered by each cell) while also limiting CapEx costs.

SunPower has indicated that volume production for these panels will begin by the end of this year, with volumes rising to 100 MW in 2019. The company eventually plans to transform all of its legacy E-Series production capacity to NGT, in a move that would add about 800 MW of capacity. Although SunPower had to take a write-down of about $369 million relating to the value of its legacy manufacturing assets during the second quarter, the move to the new technology should allow the company to become more competitive in the current environment, while potentially boosting its gross margins.

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