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Tariffs Worse Than Previously Thought, Net Negative For Chinese Solar, Roth Capital Says

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In a report published Thursday, Roth Capital Partners analyst Philip Shen discussed the Department of Commerce's final results of its administrative review of 2012 solar related tariffs in which duties came in "much worse than expected" at 30.6 percent versus prior expectations of 17.5 percent.

"Over the past few months, many companies were pricing contracts based on a 17.5 percent tariff," Shen wrote. "With the tariff now at ~31 percent, we believe these contracts may now represent meaningful liabilities as they are likely underwater, and the companies may have limited legal options for improving economics."

Shen estimated that module volumes can ship from China to the U.S. for around 51c/W, including 2c/W for shipping. However, a 31 percent tariff results in a total cost of around 67c/W which is "uneconomic" with pricing in the low to mid 60c/W in the U.S. As such, the tariff directly or indirectly impacts nearly every Chinese solar company under the analyst's coverage.

Shen continued that there is even concern in the industry that tariffs could go even higher and be "more economically painful" as the next administrative review will take place as early as September. As a result, the analyst suggested there could be a greater incentive for the U.S. and China to reach a trade settlement.

In the meantime, due to a higher tariff, Tier 1 module vendors will shift away from an all Chinese module and pursue non-Chinese and non-Taiwanese manufacturing options.

Company Specific Commentary:

  • "Winners" from the decision include First Solar, Inc. (NASDAQ: FSLR), SunPower Corporation (NASDAQ: SPWR).
  • "to a lesser degree" Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE: YGE) is a winner given its company specific tariff of only 22 percent.
  • Tier 1 firms such as JinkoSolar Holding Co., Ltd. (NYSE: JKS) are "well positioned" given tis expanded capacity to Southeast Asia to side-step tariffs.
  • Trina Solar Limited (ADR) (NYSE: TSL) and Canadian Solar Inc. (NASDAQ: CSIQ) will now "more aggressively" push its non-Chinese footprints.

Latest Ratings for SPWR

DateFirmActionFromTo
Oct 2020Piper SandlerMaintainsOverweight
Oct 2020UBSDowngradesNeutralSell
Oct 2020Credit SuisseDowngradesOutperformNeutral

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