Module Manufacturers Q2: The Industry Bleeds with One Outlier

Rudolf Stenar Saluoks - 28.09.2024

BloombergNEF revealed its solar sector outlook at the end of August, forecasting 592 gigawatts of global installations in 2024—a 33% increase from 2023. Yet, overcapacity continues to pressure module manufacturers, especially in Asia and Europe.

Many companies are turning to the US for profitability, thanks to the IRA’s Section 45X domestic manufacturing credit. However, Meyer Burger has chosen to discontinue construction of its cell factory in Colorado, preferring its German facility.

Canadian Solar and JinkoSolar, both with the majority of their manufacturing in China, expect module prices to continue declining through Q3, with JinkoSolar anticipating a more stable environment in Q4.

We took a closer look at the recent performance of four publicly traded module manufacturers: First Solar, Canadian Solar, JinkoSolar and Meyer Burger.

Share price performance

Source: Nasdaq, Investing.com

TOP 5 holdings of TAN - Invesco Solar ETF:
10.5% First Solar
10.3% Enphase
6.8% Nextracker
6.3% SunRun
5.3% GCL Technology Holdings

As well as:
2.2% JinkoSolar
1.9% Canadian Solar

First Solar (FSLR) - Awaiting election outcomes

Revenue: $1.01 billion (up 25% from Q2 2023)
Net income:$0.35 billion (up 105% from Q2 2023)

First Solar exceeded both our estimates and the analyst consensus for its Q2 financial results. The company reported EPS of $3.25, above the Zacks consensus of $2.67 and our internal estimate of $2.69.

We estimate that about $22 million in additional revenue and profit resulted from a cancellation fee tied to a 0.4 GW order. Additionally, higher-than-expected shipments from First Solar’s U.S. factories added around $52 million to the company's profits.

Overall, First Solar's quarterly financial numbers are not the most indicative metric for its future. The company’s backlog, which extends nearly until the end of 2027, gives good visibility into its financial performance over the next few years.

More relevant insights usually come from the company's bookings and pricing trends. Renewable project developers remain cautious about making long-term commitments ahead of the upcoming elections, which contributed to virtually no new bookings in Q2. That said, until the webinar in July, First Solar added 1.3 GW to its backlog, with pricing at $0.316 per watt without technology adjusters and $0.334 per watt when including them.

While we had anticipated slightly higher booking volumes, we expect that H1 2025 will provide a clearer picture. Demand for long-term contracts should normalize once uncertainties surrounding policy begin to settle.

2024 outlook unchanged despite a booking cancellation

First Solar reaffirmed its 2024 outlook, projecting earnings of $13.00 to $14.00 per share on revenue between $4.4 billion and $4.6 billion. The company anticipates selling 15.6 to 16.3 gigawatts of volume over the year. However, First Solar expects revenues to result in a lower end of their guidance due to the cancellation of 0.4 GW of modules.

Looking ahead, we project First Solar’s 2025 revenue to reach $5.8 billion (up 29% from 2024 estimates) and $6.7 billion in 2026 (up 16%). Net income is expected to grow to $2.1 billion in 2025 and $2.8 billion in 2026, with around two-thirds of this driven by Section 45X domestic manufacturing credits.

Election uncertainty

All eyes of the investors are currently on the upcoming elections, which could potentially have a detrimental effect on the policy that drives First Solar. Although, looking at the share price movements, we think that the market is overestimating the president's potential influence on the company considering different outcomes. Earlier this year, First Solar's stock was influenced by AI-related hype, but this has since faded.

We maintained our target price of $276, with no major changes to our outlook. Minor adjustments have been offset by each other. When we published our report on September 9th, First Solar’s stock was trading at $209, which we saw as undervalued.

Since then, the stock has risen over 22%, largely driven by a 5 percentage point increase in Harris’s odds of winning after the debate, which we see as a positive but not a substantial change for the company’s value.

3-month return:-0.4%
Market cap:$27.4 billion
Closing price (September 26th):$255.7

Canadian Solar (CSIQ) - Diversified business model

Revenue: $1.6 billion, down 31% from Q2 2023
Net income:$27 million, compared to $198 million in Q2 2023

In a recent webinar, long-term solar industry veteran and Canadian Solar CEO Shawn Qu described the current market situation as one of the most challenging in his career: “Record low prices are driving out uncompetitive players. Meanwhile, our industry peers announced significant first-half losses. In comparison, we have performed well, striking a delicate balance between volume and profitability. I'm proud of what we have accomplished in one of the most challenging industry cycles I have experienced in my career.”

Canadian Solar’s diversified business model has helped it weather the current downturn better than some competitors. However, the company’s revenue is still heavily dependent on its solar module business, making it highly vulnerable to that segment.

Module business hurts margins

For 2024, Canadian Solar expects total revenue between $6.5 billion and $7.5 billion, a downward revision of $0.8 billion from earlier guidance issued in the first quarter. Total module shipments are expected to range from 32 GW to 36 GW, while CSI Solar's total battery energy storage shipments are projected to be between 6.5 GWh and 7.0 GWh.

For Q3 2024, the company estimates revenue between $1.6 billion and $1.8 billion. Gross margins are expected to decline to 14-16%, down from 17.2% in the previous quarter. The company attributes the margin decline solely to the module business. As CEO Qu emphasized, “I would like to clarify that we see the margin for solar module business under pressure. However, we see a sustainable and healthy margin for our energy storage business.“

Analyst projections

According to MarketScreener analyst consensus, Canadian Solar’s revenue is expected to reach $6.9 billion in 2024, reflecting a 9% decline from 2023. Net profit is expected to drop to $54 million, compared to $274 million in 2023.

Analysts expect 20% sales growth in 2025 to $8.3 billion, and 12% growth in 2026 to $9.3 billion. Net profits are projected to recover to $250 million in 2025 and $360 million in 2026.

3-month return:-2.3%
Market cap:$0.99 billion
Closing price (September 26th):$14.9

Canadian Solar is one of the leading manufacturers of solar modules, a provider of battery energy storage solutions, and a developer of utility-scale solar power and battery energy storage projects. Although Canadian Solar's headquarters are located in Ontario, Canada, the majority of its manufacturing operations are based in China.

JinkoSolar (JKS) - Hoping for stabilization in Q4

Revenue: $3.3 billion, down 22% from Q2 2023
Net income: -$14 million, compared to a $180 million profit in Q2 2023

Being more exposed to the module business, JinkoSolar fell into a loss in Q2. The company shipped 23.8 GW of solar modules in the quarter—a 34% year-over-year increase. The challenging pricing environment led to negative revenue growth, with gross margins of just 11.1%.

According to the CEO of JinkoSolar, many solar companies are currently operating at a loss. “Coming into the third quarter, prices in the industry chain were low and volatile with prices in most segments falling below cash cost.” he said in the recent webinar.

Looking ahead, prices are expected to continue declining into Q3, with stabilization anticipated in Q4. “So in each quarter, in Q2, Q1, the average is going downward. We expect a continued trend in the third quarter and reasonably stable in the fourth quarter.“ he mentioned.

JinkoSolar maintains its guidance for module shipments, projecting between 100.0 GW and 110.0 GW for the full year 2024, with Q3 shipments expected to be in the 23.0 GW to 25.0 GW range.

Analyst projections

According to MarketScreener analyst consensus, JinkoSolar is expected to generate $14.2 billion in revenue in 2024, reflecting a 15% decrease from 2023. Net profit is projected to fall to $76 million, compared to $486 million in the previous year.

For 2025, analysts expect a revenue rebound of 18% to $16.7 billion, followed by similar growth to $19.8 billion in 2026. Profits are estimated to recover to $170 million in 2025 and $300 million in 2026, though margins in the module manufacturing industry remain thin.

3-month return:+1.1%
Market cap:$1.05 billion
Closing price (September 26th):$21.3

Meyer Burger (MBTN.SW) - Scaling down to focus on profitability

Switzerland-based heterojunction module manufacturer Meyer Burger has seen its share price plummet by 97% since the start of the year. This immense decline reflects the broader challenges faced by European solar module producers during what has been a catastrophic year for the industry.

Early in the year, Meyer Burger announced the closure of its module production facility in Freiburg, Germany. By August, the company further decided to halt the construction of a new solar cell manufacturing facility in Colorado, citing financial infeasibility.

It shifted its focus to ramping up the 1.4-gigawatt module assembly facility in Arizona. The cells for modules will now be supplied by their factory in Thalheim, Germany, which will remain operational despite previous plans to shut it down, as it is the most economical option, according to the company.

Meyer Burger also suspended its plans to expand the Arizona facility’s production capacity by an additional 0.7 gigawatts. This expansion remains a possibility but depends on the company’s restructuring efforts and ongoing discussions with customers.

On September 18th, Meyer Burger announced the departure of both its CEO and CFO, bringing in an external candidate to steer the company through its difficulties.

The company expects revenue of between CHF 350 to CHF 400 million and an EBITDA in the mid-double-digit million range from 2026 onwards and said it was largely based on the existing production capacity and long-term supply agreements with key customers.

Meyer Burger had originally scheduled the release of its H1 results for September 16th, but have not yet published.

This situation highlights that even with subsidies supporting solar cell manufacturing, profitability is not guaranteed. Meyer Burger’s struggles contrast with the strong position of First Solar, which has been extremely cautious with its capacity announcements, only committing to expansions when confident in underlying demand.

Key ratios

Note: Canadian Solar and JinkoSolar are traded on the NYSE as ADRs, which carry additional risks.