How Did Yingli Solar’s Costs Affect Its Gross Margins?



Segmental cost performance

Yingli Solar’s (YGE) PV module manufacturing segment contributes a significant portion of the company’s overall cost of revenue. The cost of revenue of the company’s PV module sales segment mainly includes the cost of polysilicon raw materials, sourcing costs, toll manufacturing costs, overhead costs, and direct labor costs.

The cost of PV systems includes the costs of PV modules, batteries, inverters, other electronic components, and related materials and labor costs. The cost of other revenue includes the cost of revenue for the procession of PV cells and PV modules as OEM (original equipment manufacturer) direct labor costs and other overhead costs.

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For 2015, the cost of sales of PV modules constituted 83.5% of total costs compared to 94.0% in 2014. The decrease is mainly due to lower shipments in 2015 on account of lower capacity utilization. As a result, the cost of PV modules sales as a percentage of net revenues from PV modules increased to 86.6% in 2015 from 82.5% in 2014.

Overall cost of sales

In 2015, YGE’s overall cost of revenue came in at ~$1.4 billion as compared to ~$1.7 billion in 2014. According to company filings, the decrease is mainly attributable to a decrease in the cost of raw materials on account of lower sales from the company’s main revenue-generating PV module segment. However, the total cost of revenue as a percentage of net revenue increased from 82.7% in 2014 to 89.1% in 2015 due to lower capacity utilization.

Capacity utilization is a key operating metric that determines the fixed costs per watt produced for upstream solar (TAN) companies such as Yingli Solar, First Solar (FSLR), Canadian Solar (CSIQ), Trina Solar (TSL), and SunPower (SPWR).

Yingli Solar’s gross margins

Lower capacity utilization and lower average selling price resulted in lower gross margins for Yingli Solar in 2015. The company’s gross margin for 2015 came in at 12% compared to 17% in 2014. Lower gross margins imply lower profitability of operations. However, the company’s gross margins improved to 20.0% at the end of 1Q16 on account of higher shipments. This also helped the company to report profits for the first time since the third quarter of 2011.

Now let’s take a closer look at Yingli Solar’s operating performance in the past five years.


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