We're less than a month away from President Donald Trump announcing his decision on the Suniva/SolarWorld Section 201 trade case, which means he'll be deciding if the U.S. will put punitive tariffs on solar imports. A recent report from Politico indicates that the administration is already preparing high tariffs, particularly on Chinese imports.
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Trump could decide to go with one of the recommendations from the International Trade Commission, which include tariffs or import licenses, but he could also implement something completely different. Here's how I think this could play out given what we know from the ITC and current reporting.
High tariffs on everyone
If the Trump Administration decides to put high tariffs on solar imports, potentially at or above what Suniva and SolarWorld requested if reporting is correct, it would be devastating for most U.S. companies in solar energy.
Winners: First Solar (NASDAQ: FSLR), given that it's the only major solar manufacturer that produces thin-film solar panels, which weren't included in the ITC case. That's created a huge windfall for the company, assuming it isn't somehow swept up in tariffs as well if Trump drafts broader ones than the ITC has considered. Suniva and SolarWorld may also be winners, but it's not clear when, or if, they'll ramp up operations again.
Losers: SunPower (NASDAQ: SPWR) probably has the most to lose from blanket tariffs. But it can transition sales to international markets, muting some of the effect. Depending on the size of the tariffs, Sunrun (NASDAQ: RUN), Vivint Solar (NYSE: VSLR), and Tesla (NASDAQ: TSLA) all have a lot to lose. Solar panels themselves may only be around 15% of the cost of a solar installation, but if tariffs increase the cost of panels by 50% or 100%, it could make their installations more expensive, forcing price increases and shrinking their addressable market.
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Ironically, Chinese solar manufacturers don't likely have a lot to lose if the U.S. shuts them out. China itself is going to install around half of the world's new solar power in 2017, and new markets like India and Africa will take their attention if the U.S. market dries up.
Import license fee
A middle ground would be a proposal from ITC Commissioner Meredith Broadbent. She suggested an import license be auctioned off for solar imports, which would then be used to help U.S. manufacturers.
The proposal could accomplish the goal of helping drive U.S. manufacturing growth without significantly raising the cost of building U.S. solar projects. If Trump chooses the import license option, it'll likely be cheered by most solar stocks.
Winners: SunPower could keep growing its high-efficiency solar business in the U.S. if it paid for an import license. It could even benefit from the distribution of fees, depending on how the system is set up or if the company opens a new manufacturing plant in the U.S. Installers like Sunrun and Vivint Solar wouldn't necessarily be winners, but they wouldn't lose much in an import license scenario.
Losers: First Solar wouldn't see nearly the benefit it would under a high tariff scenario, so this would clearly be a loss for the thin-film solar giant.
Tariffs with a lot of loopholes
One tariff option that isn't being talked about by the solar industry is a high tariff on some countries that doesn't apply across the board. There's some precedent from 2014 tariffs, which focused on China, leaving loopholes that nearly every manufacturer could get around by completing panels in another country.
For example, Trump could choose to set a very high tariff on solar cell and panel imports from China, but lower tariffs from countries like the Philippines, Malaysia, or Vietnam, where First Solar and SunPower have manufacturing plants.
Manufacturers like Canadian Solar (NASDAQ: CSIQ), JinkoSolar (NYSE: JKS), and JA Solar (NASDAQ: JASO) have also built manufacturing capacity outside of China, so they would be able to use potential loopholes as well.
While this isn't an option that ITC commissioners proposed, Trump doesn't have to follow recommendations and can choose to build tariffs however he wants. Since the industry is under the thumb of politics, it's worth considering how solar advocates could push for a political "win" without the underlying negative economic and business impact companies like SunPower fear so much.
Winners: SunPower, Tesla, Canadian Solar, Sunrun, and Vivint Solar could be winners if tariffs are implemented with loopholes that allow specific products to be imported at low/no tariffs. But it'll depend on the rules.
Losers: First Solar currently has something of a monopoly in utility-scale solar in the U.S., so any scenario outside of high tariffs on all solar panel imports would be a loss for the company. Recent bookings were fueled by developers concerned about tariffs, and in 2018 we'll see a big ramp-up in mono-PERC solar panel production that reduces the technical advantage Series 6 has in the market.
What to expect from solar tariffs
There's sure to be a big reaction from the market when solar tariffs are announced, so it's worth thinking through how tariffs could affect your investments. Depending on what direction the Trump Administration is leaning in, solar stocks could pop or plunge based on the results.
I'll also note that the solar industry (and likely the stock market) is expecting import import tariffs of around 30%, so anything lower than that would be a win for most manufacturers and installers.
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