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JA Solar Holdings Co. (NASDAQ: JASO) is an emerging, Chinese producer of monocrystalline solar cells. The energy sector is becoming increasingly turbulent, with oil recently hitting $100/barrel and alternative energies becoming increasingly popular. JA Solar sells its products to solar module manufacturers who assemble and integrate JA Solar’s solar cells into modules and systems that convert sunlight into electricity. JA Solar currently sells its products to customers in China, Germany, Sweden, Spain, South Korea and the United States. Growth in solar panel efficiency over the last few years has made the sun an increasingly appealing source of power; rising silicon prices threaten the success of the solar industry in this new environment, however, by making photovoltaics more expensive relative to other energy sources like wind. In an industry where the supply of refined silicon has ramped up production costs and crunched margins, JA Solar continues insures itself against rising input prices by establishing supplier relationships with such monocrystalline wafer suppliers as M. Setek, Renesola, and Shunda Semiconductor and contracting for large, low-cost silicon deliveries in coming years. Within the solar industry, JA Solar must compete on the basis of its solar panel efficiency and its manufacturing costs. Though the company is based in China, and therefore keeps production costs down via cheap labor, it is barely above average in both measures of solar success. JASO will either have to develop stronger efficiency technologies or lower-cost production technologies, as 17.7% efficiency[1] cells that cost $2.37/watt[2] to manufacture don't compare well against competitors like SunPower or First Solar, with 22% efficiency[3] and $1.40/watt[4] manufacturing cost respectively. The solar sector is becoming more and more competitive; among JA Solar's competition are such powerhouses as SunPower, SunTech, BP Solar, Sharp, Kyocera, and Q-Cells.
[edit] Company Overview
JA Solar is an international producer of photovoltaic (PV) cells. PV cells absorb light energy (usually from the sun) and convert it to electricity. There are multiple kinds of PV cells; JA Solar produces monosilicon cells. The company takes monocrystalline wafers made by silicon refiners like ReneSola and M. Setek and turns them into PV cells. Each cell has a relatively low power output, but when multiple cells are combined into a system or module, enough electricity can be generated to power a house, a factory, or even contribute to the utilities grid. JASO, however, is only involved in cell production - it sells its products to module manufacturers and systems integrators and lets them do the dirty work.
JA Solar currently sell its products to customers in the U.S., China, South Korea, Germany, Sweden, and Spain.
| 1Q06 | 2Q06 | 3Q06 | 4Q06 | 1Q07 | 2Q07 | 3Q07 | |
|---|---|---|---|---|---|---|---|
| Revenue ($ Millions) | 0.4 | 12.8 | 33.1 | 46.6 | 44.7 | 61.0 | 113.4 |
| Gross Margins | 18.2% | 23.9% | 26.2% | 23.9% | 20.5% | 24.1% | 23.5% |
| Net Margins | - | 18.5% | 16.0% | 21.0% | 18.1% | 16.6% | 19.5% |
Source: Lehman Brothers Global Technology Conference Presentation[5]
In Q2 2007, company revenue reached $61 million. Net income available to ordinary shareholders for the quarter was $9.9 million, with gross profit margin at 24%. Basic and diluted earnings per ADS were $0.22 and US$0.21 respectively. For the same period, manufacturing capacity was 175MW.
JA Solar's monocrystalline solar cells have generally achieved conversion efficiency rates in the range of 16.0% to 16.5%. The highest efficiency level achieved with solar cells produced by JA Solar to date was 17.70%. In terms of wafer thickness, JA Solar is capable of processing silicon wafers that are as thin as 180 microns.
JA Solar currently purchases a large amount of its wafer supplies from Jinglong Group, which is owned by the shareholders of its largest shareholder, Jinglong BVI. Jinglong Group is the largest producer and supplier of monocrystalline wafers in China with more than ten years’ operating history in the silicon processing business. Recently, JASO also entered into supply agreements with wafer manufacturers ReneSola, M. Setek, and Shunda Semiconductor.
[edit] Trends and Forces
[edit] JA Solar cuts Production amid Weak Demand for Solar Cells, Looks to Chinese Government for Subsidies
In order to keep up with the demand for alternative forms of energy, solar cell manufactures increased production significantly in the June and July of 2008.[6] In the second half of 2008, solar cells were a more attractive energy investment to volatile oil, gas, and coal prices, which had risen up to 200% in the first seven months of 2008.[7] Yet, when consumers started to buy less gasoline and power producers started to buy less coal, the prices of both energy sources plummeted. In November 2008, JA Solar cut its expected 2008 earnings 20% amid lower gasoline and coal prices in addition to weak demand for energy.[8] Since customers have delayed orders or canceled them, JA Solar has a large inventory of solar cells that were produced when orders were increasing in the first half of 2008.[9] Over-supply and declining demand for solar cells have pushed prices down 20% and the company’s expected gross margin down 14% to 16% in the second half of 2008.[10] Additionally, JA Solar posted a one-time loss of $107.3 million in the third quarter of 2008 due to investments with Lehman Brothers.[11] With less money coming in from sales of solar cells and the investment loss at Lehman, third quarter net loss was $21 million. In the second quarter of 2008, JA Solar had a net profit of $24 million.[12] Reduced prices, weak demand, and losses due to investments in Lehman have forced to cut production costs in order to boost profit. By November 2008, half of JA Solar’s production lines had been closed down.[13]
Subsidies from the Chinese Government's Economic stimulus package have the potential to improve the profitability of producing and selling solar cells for Chinese solar companies like Ja Solar.[14] In June 2009, the government outlined its plans for China's first national solar subsidy program. In the plan, Chinese solar companies have to install a minimum of 50 KW to receive the $2.93 per watt subsidy for solar energy.[15] $1.45 billion has been slated for the subsidy, which is enough to supply an additional 500 megawatts of energy.[16] While the opportunity to receive government subsidies is available to over 50 solar companies operating in China, analyst predict that the government has the potential of giving 95% of the subsidies to the top ten solar producers including Ja Solar, Suntech Power Holdings (STP), Solarfun Power Holdings (SOLF), ReneSola (SOL), and YINGLI GREEN ENERGY HLDG CO (YGE).[17]
On the conference call for first quarter 2009, Ja Solar management reported revenues that were 76% lower when compared to the same quarter in 2008.[18] In 2009, Ja Solar has become increasingly dependent on domestic sales in China. Of Ja Solar's $34 million in sales, 77% came from sales in China.[19] In the the fourth quarter of 2008, sales in China accounted for 60% of total revenues.[20]
[edit] Ja Solar to Power BP Solar in 2009
In February 2009, Ja Solar and BP Solar International formed a deal in which Ja Solar will supply BP with 175MW of monocrystailline and polycrystalline solar cells.[21] The deal will supply BP Solar initially with 175MW of solar cells in 2009, but the deal could reach as much as 360MW over the year.[22] For 2009, Ja Solar has orders for 80% of its projected volumes.[23]
[edit] Investors Worried about Future of European Solar, but Optimistic about Obama
During the second half of 2008, banks and media companies downgraded many publicly traded solar companies. Despite Ja Solar's 150% revenue increase in the third quarter of 2008, analysts were worried that cheaper gas prices, tighter credit will have long term negative effects on solar energy companies.[24] In addition, many European Governments are starting to cut back subsidy programs for alternative energies. Analysts at Hapoalim Securities believe that, as Spain and Germany cut Government investments in solar technology, market growth for Solar installations could be -2.5% in 2009.[25] Close to 14% of Ja Solar’s 2007 revenue came from European countries like Sweden, Germany and Spain.
However, the new Obama administration will increase United States programs for alternative energy, possibly making the United States the biggest market for solar installations. By improving current tax credits for alternative energy companies, the United States could surpass Spain and Germany as the biggest market for solar technology.[26] However, Ja Solar sells about 84% of its products in China and is more indirectly exposed to increases in solar investment by the United States.
[edit] JA Solar Keeps a Steady Silicon Supply to Protect Itself against Shortages
Recently, JA Solar has secured large supply deals with major silicon providers, in order to insure that it will have enough of the necessary materials to continue to grow without seeing costs rise. Examples include:
- A December 2007 deal with ReneSola to provide 660MW worth of silicon wafers to JASO from 2008 through 2013[27].
- A revised contract with M. Setek to provide 1,200,000 wafers per month from January '08 through June '08, 3,000,000 wafers per month from July '08 through June '09, and 5,000,000 wafers per month thereafter until the end of 2011 - all for $100 million. JASO was able to negotiate wafer numbers up significantly; the original deal had M. Setek delivering 500,000 wafers per month from January '08 through June '08, 1,500,000 wafers per month from July '08 through June '09, and 3,000,000 wafers per month thereafter - still for $100 million[28].
- A $46.4 million dollar contract made in September of 2007 with Shunda Semiconductor for up to 1.2 gigawatts worth of monosilicon wafers, delivered for 41 months[29].
JASO uses silicon for the majority of its products, as do most solar power companies; currently, there is a worldwide silicon shortage. This shortage has been caused by a lack of silicon refining capacity. In the past, companies like MEMC Electronic Materials (WFR) produced silicon wafers for the semiconductor industry. Now, with the advent of solar power and its rapid growth, demand for silicon has increased greatly, leading to its undersupply as production capacity is not enough to meet current demand. This undersupply has led to rising prices for solar equipment which in turn raises the price of solar power compared to other clean energy production technologies such as wind and ethanol. Furthermore, higher silicon prices mean higher production costs for solar companies - and lower margins. By securing low-priced silicon supplies for the next few years, JA Solar hopes to shelter itself from the silicon price storm, until refining capacity expands to meet demand.
[edit] Neither the Efficiency nor the Cost of JASO's Cells are Remarkable for the Emerging Solar Industry
Despite producing monocrystalline solar cells, which tend to have higher efficiencies than multicrystalline cells, JASO's best product has a maximum production efficiency of 17.7%[30]. JASO produces less efficient cells than major competitors like SunPower (22%[31]), Suntech Power Holdings (18%[32]), and Kyocera (18.5%[33]). Even with lower production costs from using low-wage Chinese labor, JASO's 3Q07 manufacturing cost of about $2.37/watt[34] is not as low as some competitors like First Solar, with a cost of $1.40/watt[35]. Solar panel efficiency is important because Oil and gas prices have trended upwards over the past several years. As rising oil and gas prices lead to more expensive commercial electricity, consumers may start to demand new, cheaper sources of power. Solar power is currently less efficient than other energy sources, even wind. Sunlight, however, is available in massive quantities for half the day, and is free, unlike oil or coal. For these reasons, when oil and gas prices rise, solar power becomes a more viable alternative, despite the current level of inefficiency. Concurrently, as solar power's efficiency rises, it becomes more competitive with oil and gas. The solar industry's R&D focus is on increasing this efficiency while minimizing the use of inputs like silicon. If solar companies can develop technology that allows more electricity to be produced with thinner PV cells, for less money, then solar power will become more competitive.
[edit] Government Support for Renewable Energy is Vital to the Growth of the Solar Industry...and JA Solar
Governments worldwide have implemented legislation to encourage alternative energy production, due to political pressure from public concerns about climate change and energy independence. Examples include:
- California's mandate that 25% of electricity come from clean sources by 2020 and 75% by 2050
- California's One Million Solar Homes initiative that gives subsidies to developers to build fully solar powered homes
- The European Union's stated desire to get 22% of its energy from clean sources by 2010
- China's Renewable Energy Law aiming to raise the total percentage of renewable energy used in the country to 10% by 2020
Emissions caps and clean energy mandates that are supported by subsidies and tax cuts make solar energy relatively cheaper. This means that corporations and utilities companies may turn to clean energy sources to generate electricity for manufacturing facilities and power plants, directly benefiting solar power companies like JA Solar. Without government support, however, solar companies would have difficulty vending their products, as solar energy is currently much less cost effective than coal or natural gas.
[edit] Competition and Market Share
JA Solar only recently emerged as a major player in the solar market, after being formed in 2005 and going public in 2007. The company produces monosilicon PV cells, which are more expensive to produce than polysilicon PV cells, but tend to have higher efficiencies - though JA Solar's cells still have lower efficiencies than many others. Other competitors, with 2005 market shares[36], include:
- SunPower (SPWR) (insignificant in 2005) - One of the fastest growing solar companies, with one of the most efficient cells around
- Sharp Electronics (24%) - The largest photovoltaic cell manufacturer in the world
- Suntech Power Holdings (4%) - A Chinese photovoltaic cell company that is muscling its way into world solar markets
- Solarfun Power Holdings (insignificant in 2005) - Another Chinese PV company that operates 90% in Europe and makes most of its money by selling modules, rather than individual cells.
- Evergreen Solar (insignificant in 2005) - A solar company that produces string ribbon PV cells and operates at all production levels from silicon wafer to power system.
- Kyocera (8%) - A Japanese electronics company that is also a major manufacturer of solar cells
- Q-Cells (9%) - A privately owned, German solar manufacturer
- First Solar (insignificant in 2005) - A thin cell solar panel manufacturer that uses cadmium telluride instead of silicon for its cells.
- BP (5%), Mitsubishi (6%), and Sanyo (7%) - Not primarily photovoltaic cell manufacturers, but heavy market competitors nonetheless.
- EMCORE (insignificant in 2005) - A Concentrated Photovoltaic System manufacturer that uses Gallium arsenide PV cells and got its start in the solar business making power cells for satellites.
- Energy Conversion Devices - This company uses amorphous thin-film silicon in its ultra-thin, albeit low-efficiency solar cells.
| Manufacturer | Conversion Efficiency |
|---|---|
| SunPower(Polysilicon) | 23.4%[37] |
| Suntech Power Holdings(Polysilicon) | 18%[38] |
| Sharp (Polysilicon) | 13%[39] |
| Kyocera (Polysilicon) | 18.5%[40] |
| Solarfun (Polysilicon) | 17.2%[41] |
| JA Solar Holdings (Monosilicon) | 17.7%[42] |
| Trina Solar(Mono & Polysilicon) | 16.6%[43] |
| Evergreen Solar (String Ribbon) | 15%[44] |
| EMCORE (GaAs Concentrated Solar System) | 37%[45] |
| Energy Conversion Devices (Amorphous Silicon Thin Film) | 8.5%[46] |
| First Solar (CdTe Thin Film) | 10.5%[37] |
| DayStar Technologies(CIGS Thin Film) | 14% [47] |
| Ascent Solar (CIGS Flexible Thin Film) | 9.5% [48] |
[edit] Notes
- ↑ http://jasolar.com/Web/products-en.asp
- ↑ JASO Q3 2007 Earnings Call Transcript, Page 2, http://seekingalpha.com/article/53700-ja-solar-holdings-co-ltd-q3-2007-earnings-call-transcript?page=2
- ↑ SunPower's New Solar Panel Is 22% Efficient; http://www.renewableenergyaccess.com/rea/news/story?id=46286
- ↑ 2006 First Solar Annual Report, Item 1 (Pg. 3)
- ↑ JA Solar Presentation for Lehman Brothers Global Technology Conference, http://library.corporate-ir.net/library/20/208/208005/items/272581/JASOPresentation.pdf
- ↑ Reuters.com: JA Solar cuts forecast, sees solar "panic", November 2008
- ↑ Reuters.com: JA Solar cuts forecast, sees solar "panic", November 2008
- ↑ Reuters.com: JA Solar cuts forecast, sees solar "panic", November 2008
- ↑ Seeking Alpha: JA Solar Blames Lehman for its Q3 losses, November 2008
- ↑ Reuters.com: JA Solar cuts forecast, sees solar "panic", November 2008
- ↑ Reuters.com: JA Solar cuts forecast, sees solar "panic", November 2008
- ↑ Seeking Alpha: JA Solar Blames Lehman for its Q3 losses, November 2008
- ↑ Seeking Alpha: China Solar Companies Slowing, November 2008
- ↑ investerms.com: Will China’s Solar Subsidies Meet Expectations?, April 2009
- ↑ China's First Round of Solar Project Applications, June 2009
- ↑ China's First Round of Solar Project Applications, June 2009
- ↑ China's First Round of Solar Project Applications, June 2009
- ↑ Motley Fool : What's missing at Ja Soar
- ↑ Motley Fool : What's missing at Ja Soar
- ↑ Motley Fool : What's missing at Ja Soar
- ↑ Green Stocks Central: JA Solar (JASO) Signs Supply Agreement With BP Solar Intl, March 2009
- ↑ Green Stocks Central: JA Solar (JASO) Signs Supply Agreement With BP Solar Intl, March 2009
- ↑ Fool.com: JA Solar Sucks Wind, March 2009
- ↑ JA Solar: News Release
- ↑ Barrons.com: Sunset, Sunrise: Solar Stocks Stage Giant Rebound
- ↑ Barrons.com: Solar: Can U.S. Upside Trump European Slowdown?
- ↑ AOL Money & Finance: News, "JA Solar Inks New Wafer Supply Agreement With ReneSola", December 18th, 2007, http://money.aol.com/news/articles/_a/ja-solar-inks-new-wafer-supply-agreement/n20071218082709990004
- ↑ Fabtech.org, "JA Solar, M.Setek restructure solar-wafer deal, cause jaws to drop", June 12th, 2007, http://www.fabtech.org/content/view/5406/121/
- ↑ Cleantech.com, "China's JA Solar, Shunda in wafer supply deal", September 10th, 2007, http://media.cleantech.com/1755/chinas-ja-solar-shunda-in-wafer-supply-
- ↑ http://jasolar.com/Web/products-en.asp
- ↑ SunPower's New Solar Panel Is 22% Efficient; http://www.renewableenergyaccess.com/rea/news/story?id=46286
- ↑ Forbes - Sun King; http://www.forbes.com/free_forbes/2006/0327/062.html
- ↑ Kyocera - Solar Timeline; http://kyocerasolar.com/about/timeline.html
- ↑ JASO Q3 2007 Earnings Call Transcript, Page 2, http://seekingalpha.com/article/53700-ja-solar-holdings-co-ltd-q3-2007-earnings-call-transcript?page=2
- ↑ 2006 First Solar Annual Report, Item 1 (Pg. 3)
- ↑ CIBC Initiating Coverage, SOLF, January 29th, 2007
- ↑ 37.0 37.1 [http://www.renewableenergyaccess.com/rea/news/story?id=46286
- ↑ Forbes - Sun King; SunPower's New Solar Panel Is 22% Efficient
- ↑ SharpUSA Product Brochure
- ↑ Kyocera - Solar Timeline
- ↑ Solarfun Website
- ↑ http://jasolar.com/Web/products-en.asp
- ↑ TSL 20-F 2007 Pg. 7
- ↑ ESLR 2007 Earnings Call Transcript, Page 1
- ↑ EMCORE.com: Terrestrial Solar Cells and Receivers"
- ↑ ENER F1Q08 Earnings Call Transcript, Page 5
- ↑ DSTI 10-k 2007 Pg 1
- ↑ Ascent First Quarter 2008 10-Q Pg 23
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