Chinese solar companies in trouble

[Puppycow]

Why China is losing the solar wars

Four years ago, investors placed bets that China would dominate solar energy. Now China's solar industry is just a capital destruction machine, with some of its most prominent companies desperately flailing for lifelines.

FORTUNE -- The numbers are so awful that you can hardly believe your eyes. Punch up any of the major China based solar energy companies and take a look (unless of course you've been, God help you, a long-term holder of these stocks, in which case you already know all too well what the charts show).

LDK Solar (LDK), down 80% in the past year, Suntech Power Holdings (STP) down 87%. The numbers for other big Chinese names, Trina and Yingli among them, are almost as bad.

But don't stop there. Go back four years or so, and look at where these stocks were trading then. For a brief moment at the beginning of 2008, Suntech traded at over $80 a share. Eighty dollars a share! Earlier this week, after a conference call in which it alleged it had been defrauded to the tune of 554 million euros, possibly threatening its ability to make future debt payments, it dipped under $1.00. LDK Solar once traded at over $60 per share. Now it's $1.39. On and on we could go with all the other alleged Chinese powerhouses in the supposed industry of the future.

These are epic, historic collapses in market valuation, made all the more stunning by the assumption, so prevalent just four years ago, that "clean" energy's time had come. How ironic it is that Barack Obama's insistence that the United States invest government money into the creation of so called "green jobs" -- which led to the debacle of Solyndra and other wasted investments -- was predicated on the fact that if the U.S. didn't do so, the industry of the future would be Made in China. A credulous political press, egged on by the environmental lobby, swallowed the reasoning wholesale.

It goes on to compare the solar industry with the DRAM industry, and predicts that Samsung (a Korean company) will win the solar wars just like they won the DRAM wars.

 

[balrog666]

Same article ...

The solar industry has been, as Michael Parker, a senior analyst at Sanford Bernstein put it earlier this year, "a $25 billion mechanism to extract subsidies from Western European and North American governments." That is, given that solar has been uncompetitive relative to coal, hydro and natural gas, it relied on government subsidies—granted in the name of environmental protection—to exist. The global financial crisis, and the deep recessions that have ensued, blew that world apart.

Not exactly a surprise when they make a product (out of toxic elements) that loses money for almost everyone that buys it.

But, some day, past the rainbow bridge of failed investments in solar power, the first company to reach breakeven won't even need to sell the panels to make a profit.

 

[Trakar]

Why China is losing the solar wars

It goes on to compare the solar industry with the DRAM industry, and predicts that Samsung (a Korean company) will win the solar wars just like they won the DRAM wars.

The economic slowdown of the last few years has severely impacted most if not all business, regardless of whether the home country was directly embroiled in "bubble" issues. Additionally, many nations have slapped protective tariffs on items where there are similar native industries. The article linked from CNN sounds both exaggerated and incomplete. Between hard economic times that reduced demand, and the major markets having native industries that they have reacted to protect from China's heavily (nearly fully) subsidized solar panel production sector, it is more about China's early dominance and current retraction to more reasonable market shares than it seems indicative of any inherent flaw in the product or total failure of the chinese solar panel market.

 

[timhau]

Why China is losing the solar wars

It goes on to compare the solar industry with the DRAM industry, and predicts that Samsung (a Korean company) will win the solar wars just like they won the DRAM wars.

How sure can we be that the companies and their reported numbers were legit and honest to begin with? Wall-Street-listed Chinese small caps have been rife with fraud, mostly but not exclusively companies who got listed through the back door in a reverse merger. I don't know if the companies mentioned in the piece are reverse mergers, but have their primary listing in New York and FT.com finds no evidence of them being listed in either mainland China or in Hong Kong, and that is certainly a red flag.

 

[Ziggurat]

I remember some time back a thread about how US solar companies were demanding tariffs to protect against Chinese competitors because supposedly those competitors were being subsidized by their government and thus engaged in dumping. My response at the time was that if Chinese solar companies were selling their products below cost, then the appropriate response from us was not to stop them, but to buy more. The more we buy, the more money they lose.

Looks like I had the right idea.

 

[jimbob]

To me (working in the semiconductor industry) it just seems as if the Solar (especially PV) industry is in a similar state of maturity to the semiconductor industry 30-40-odd years ago. Lots of start ups, and a very cyclical business.

Demand rises, so there is a massive investment leading to overcapacity and a price fall which wipes out a lot of players (book to bill of 0.44 is not a happy place to be in) but the slump lowers prices; this leads to new demand being created (new applications become economical), and most of the capacity is available, if not in use, so the remaining companies then have the chance of buying up capacity and manufacturing capability, which enables them to make large profits in the next upswing.

ETA: The slump causes a contraction in capacity, which raises pricces and enables the upswing for the surviving companies, whereupon there is massive investment...

In the semiconductor industry this happened for most of the last 40-years, although it seems to be slowing down now.

 

[daenku32]

I remember some time back a thread about how US solar companies were demanding tariffs to protect against Chinese competitors because supposedly those competitors were being subsidized by their government and thus engaged in dumping. My response at the time was that if Chinese solar companies were selling their products below cost, then the appropriate response from us was not to stop them, but to buy more. The more we buy, the more money they lose.

Looks like I had the right idea.

Absolutely. The potential we have for solar electricity production is so massive that after all these years we haven't even reached a fraction of it. It will take us over 50 years to approach any kind of saturation point so we mind as well keep at is even as the technology improves and prices continue to come down.