The Poster Child for Solar Power Flameouts
Last week, we showed you how government subsidies are distorting the energy market.
But what about solar stocks? Do all these subsidies end up lining the pockets of companies producing solar cells?
Plainly, the answer is “no.”
Just take a look at what happened to Chinese solar cell manufacturer Yingli Green Energy (YGE) earlier this week.
Yingli’s 2012 earnings report showed a whopping 43% increase in shipments. Furthermore, the company expects shipments will grow about 50% next year – making Yingli the biggest solar manufacturer in the world.
And yet, the stock tanked.
Why? Because while the number of cells sold grew rapidly, revenue actually fell 21%. In fact, earnings per share dropped from a loss of $0.70 in 2011 to a loss of $3.01 in 2012.
That’s simply a disaster.
The problem is that the supply of solar cells is way out of whack with demand. Subsidies have created too many manufacturers, while the science hasn’t gone far enough to eliminate the added expense for consumers.
The result has been a price war that’s killing the manufacturers.
Yingli’s earnings call trumpeted the increase in shipments, noting that the company is “proud to become the largest PV module supplier in the world.” (Though, it didn’t mention the decline in revenue until nearly the end.) It also suggested that solar prices would rise from here.
Don’t buy into it.
Yingli trotted out the same sort of rhetoric in 2011, and its average selling price has fallen 45% since then.
By the company’s own admission, global solar cell production capacity in 2013 will be 30% higher than demand requires. And that’s the optimistic view.
Now, is there a chance that Yingli will be there with a major manufacturing capability to reap all the benefits if solar cell prices do eventually turn around?
Yes. But it’s not likely, nor will it happen any time soon. And in the meantime, Yingli’s stock is going to continue to decline, and competitors like SunPower (SPWR) and First Solar (FSLR) are going to slide with it.
And “the chase” continues,
Matthew Weinschenk
