7. Who is left standing in China?
Bloomberg recently wrote a piece on Apple (AAPL) contract manufacturer FoxConn's plans to enter the solar marketplace as a manufacturer of panels. As the efficiency of Asian-made panels has increased and the cost of manufacturing in Asia has plummeted, one has to wonder whether pure-play solar companies like Trina Solar (TSL) or Suntech Power or Yingli Green Energy (YGE) are the future of that industry, or if a low-cost commoditized product like the solar module should be work left to the contract manufacturers of the world. It's probably fair to say that manufacturing an iPad or iPhone requires more precision than a solar module.
In a sense, it's interesting to note that Foxconn is getting into the solar manufacturing game now, after gross margins have plummeted from the 30% range to less than 10%, and even into negative territory for some companies right now. This is the world which Foxconn knows, a low margin game that it does better than anyone else, not a high margin unsustainable game played by companies running from European market to European market chasing short-term solar subsidies. So will the Chinese, and possibly the global solar manufacturing space, look very different five years from now, with the pure-play a thing of the past and the Foxconns of the world adding the solar panel to the list of "innovative" products that they churn out for the world?This also circles back around to the earlier question on the future of U.S. solar manufacturing. With First Solar interim CEO Ahearn scaling back manufacturing expansion and talking a more sober game of developing solar projects in key emerging markets like China, India and Africa, should these U.S. solar innovators become the "Bechtels" of solar, setting the standard in global construction of alternative energy infrastructure and leaving the panel manufacturing to Foxconn? 8. Does the escalating solar trade war eat the hand that feeds solar?
If you think back over the past few years for this sector all of the market moving headlines -- before the crash of 2011 -- had been about the risk to European subsidies. Would Germany install a cap on solar installations? Would Italy curtail the level of subsidies paid for solar projects? Nothing moved the solar market like some anonymous comment from a European politician about potential changes to solar subsidies. Those days may be over, but the political game in solar is just getting started with the trade war launched by SolarWorld against Chinese solar manufacturers, alleging dumping of solar modules and unfair subsidies. Two can play at that game. In fact, more than two can play. China is planning to launch its own counter-offensive against U.S. solar subsidies -- and we have plenty of them -- and India is now making noise about getting into the solar trade war, a market when First Solar has benefited greatly from the financing largess of the U.S. bank focused on export, the Ex-Im Bank. The U.S. steel industry launched a trade war in the 1970s. It's still fighting that war today. My bet is that the solar trade war becomes the most difficult issue to navigate for solar investors, much like trying to handicap the next move by Italy or Germany relative to solar subsidies once was. We may soon wish for the return of those easy-to-understand solar subsidy war days.
Eric Rosenbaum. >To follow the writer on Twitter, go to Eric Rosenbaum. Follow TheStreet on Twitter and become a fan on Facebook.
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