Suntech Bets on the United States
In a weird reversal of the usual order, Chinese solar company Suntech has announced plans to site some manufacturing operations on American soil. It will spend the next few months determining a location for a factory, and potentially have it in operation within a year or so, producing panels for the local market.
Suntech's move is increasingly typical of the solar industry. With margins tight and competition intense, cutting down on long-distance shipping (and the attendant breakage rate for panels) can shave off enough of the price to give companies an edge over the competition.
However, it's just one bet that Suntech is making in an increasingly aggressive strategy. Despite seeing its 2008 profit fall to less than $100 million, the company recently repurchased $150 million of its senior notes. It is also making risky development bets in thin-film solar and building-integrated products, for which there's no real market yet, and investments in up-and-coming companies like Nitol Solar, which it just lost $25 million on.
Building capacity in the States is also a risk. With the market sharply down due to the recession, there's currently a glut of panels for sale, including plenty from Suntech. If the market doesn't recover as quickly as expected next year, the company could be left holding the bag. It will also have to ensure that its production lines are highly automated to offset the higher labor costs, something European companies like Schott Solar, which just opened its own 100 megawatt facility in New Mexico today, may be better at.
But all told, Suntech is likely to come out ahead. With unemployment rates high, states and local communities will be keen to offer Suntech big incentives for a plant. And with Suntech panels ending up a bit cheaper, rivals like SunPower and Sharp could be discomfited by the move.
Suntech happens to be announcing its first quarter results on May 21, so keep an eye out for those, too.
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