Reasons for a fair performance in Q3 2014

Most of the solar companies recently updated their Q3 2014 results. The performance in the overall segment was satisfactory. Many companies missed analyst estimates, reduced annual guidance and gave a fair performance. This led to a fall in their stock prices too, in many cases.  Solar industry has seen many ups and downs. The prices of solar components fell down considerably during the last few years, due to the over supply created by the Chinese Solar market. However some supply demand balance has now returned to the industry globally, which led to a reasonable pricing of the solar products. China and Japan are set to be the strong solar players in the future. As such the solar companies are increasing their foothold in these countries. The Chinese government recently passed regulations favoring the development and usage of renewable energy. The country has set a target to achieve 100 GW of solar power by 2020.

However, many companies gave fair results. Let’s analyze some of the few reasons for this average performance:

i) US China trade wars – The fate of the solar industry largely depends upon the trade relations between these two giants. China is a solar hub housing many large solar companies, supplying solar panels and other products to the world at large. The companies have remained anxious about the final decision reached between the countries. Hence many companies were not that aggressive, because of these ongoing trade wars.

ii) Currency Fluctuations – There was a notable currency depreciation especially in Europe and Japan. These two countries are the major importing shipping country for many solar companies. As a result the gross margins suffered due to declining ASPs.

iii) Competition – The solar industry has become very competitive in the recent times. There are many big solar companies especially in China, which have a strong foothold in China (Trina Solar, Canadian Solar, Jinko Solar, Yingli Solar, Renesola etc.)and also in other countries like US, Europe, Australia etc. The Chinese companies also have an added advantage of government support since the local government always favor the local companies. Companies who do not have a presence in China and other Asia Pac countries (First Solar, SolarCity etc.) are losing out on a major chunk of their revenues.

Let’s hope the solar industry sees some more sanity and overcome the current issues to deliver better results in the next quarter. The policies by the Chinese government will surely boost up performance in the next few quarters.