Chinese Solar Co's Having a Hard Time

So... You think China will take over the Solar PV market...?  Think again.

I spoke recently with Jack Meng, the Chief Representative and co-founder of Fire Energy in Beijing.  His up-to-the minute assessment of the China PV manufacturing industry was insightful...and surprising.

Here are the 3 big suprises I learned from Jack Meng (Thank You Jack!):
 
SURPRISE #1

By Jack's estimation, there have been as many as 3,000 manufacturers of solar modules pop up in China over the last few years.  However, the current economy and industry pricing dynamics (more on that later) have already killed 70% to 80% of the companies.  That's right.  Perhaps 80% of China's PV panel companies are ALREADY BANKRUPT and out of business.

The implications are staggering:

• Failure will breed more failure.  Already doubtful of Chinese quality control standards, many USA buyers will have more reason NOT to buy from China.  Buying stock from a company that disappears tomorrow means no warranty, no customer support, no repairs, no spare parts...  These aspects of customer service are vital to sales in the USA.

• Internationalization is key.  Those Chinese companies that can offer LOCAL customer service to USA buyers will win.  Any Chinese company that wants to sell to the USA now must open an office -- and a warehouse -- here in the USA.  It is the only way to overcome the fear.

SURPRISE #2

Beijing has recently promised to reimburse the cost of building PV system -- UP TO 70% !  The government is hoping that these incentives translate into 500MW of new solar installed this year.  You might think that sounds like a great market.  But with some 300 manufacturers still competing for that business, it means little more than 1 MW of new sales for each remaining solar module company:

• Domestic companies will continue to fail.  No company can afford to focus only on sales within China.  Clearly, the carnage is not over yet.
• International growth is a must.  Any Chinese company that wishes to survive must look for sales in the USA and Europe.

SURPRISE #3

Market confusion, over-stock and plentiful supplies, and the lack of breakthrough technology has made Solar PV a commodity business.  Like any commodity, price is becoming more of a factor.  Factory prices in China are down to $0.75 per Watt.   This incredible reversal (prices were $4 last year!) is forcing companies to compete differently.

• Competing on price only will drive margins to zero and cause more business failures.
• Successful companies must compete on service, delivery, or some other "value added".  When the buyer thinks that all products are the same, each company must find something OTHER THAN THE PRODUCT that makes them different.  Buyers are price sensitive -- but are almsot ALWAYS willing to pay more for better service, longer warrantess, maintenance contracts, and other services.  Selling Silicon will not save you!

CONCLUSION

Any company "Selling Silicon" will be stuck with expensive inventory and falling prices.  All PV manufacturers must find ways to differentiate themselves -- and to diversify their market base.  Entering new geographic markets, new product niches, or new service sectors will mean the difference between growth and bankruptcy.

Interested?  Let's talk about selling Chinese PV in the USA....  call me at 803-746-4069.   - David Worrell