Demand for products from upstream solar (TAN) companies like Trina Solar (TSL), Yingli Solar (YGE), First Solar (FSLR), Canadian Solar (CSIQ), and SunPower (SPWR) depends substantially on government incentives and regulations. Incentives such as investment tax credits, net metering, property tax exemptions, sales tax exemptions in the United States, and feed-in tariffs in China encourage customers to go solar (TAN).
According to Yingli Solar’s (YGE) company filings, China (FXI), Japan, and the United States were the top three markets for the company’s solar (TAN) products in 2015. Any changes or uncertainty in regulations in these regions could have a significant impact on the company’s sales. Additionally, changes in regulations and policies related to rate design could lower the value of electricity generated from solar panels and reduce the sales of the company’s customers, which could impact sales.
Changes in anti-dumping and anti-subsidy duties in Yingli Solar’s exporting markets can also have a negative impact on the company’s sales volume.
Cost of capital
The upstream solar industry is a capital-intensive industry. Incumbent players are required to invest a huge amount of capital upfront in developing and expanding their manufacturing facilities. Any increase in the cost of capital could thus have a significant impact on Yingli Solar’s profit margin.
According to company filings, Yingli Solar purchases polysilicon, the key raw material in the manufacturing of its solar modules, from a limited number of suppliers.
In 2013, 2014, and 2015, YGE’s five largest suppliers in the aggregate supplied approximately 83.4%, 80.3%, and 90.9%, respectively, of the company’s total polysilicon purchases. As a result, any increase in polysilicon prices could require the company to pay more to its suppliers in the absence of long-term contracts. If the company is unable to pass on the higher prices to its customers, it could seriously impact its profit margins.
In 2015, Yingli Solar purchased the majority of its polysilicon from two vendors through long-term contracts at prices adjusted on a monthly or quarterly basis.
Competition in the solar power industry, especially in module manufacturing, is rising. The fall in polysilicon prices in recent years has prompted new players to enter the module business and old players to increase their capacities. As a result, there’s been intense competition in the industry.
Now let’s compare Yingli Solar’s operational performance with that of its peers.