Solar's Fallen Angels: China to Credit to Margins (FSLR, JASO, TSL, JKS, LDK, STP, YGE, APWR)

One sector that is not falling in response to the downgrade of US debt is the solar PV industry. It is tanking on its own. Bellwether stock First Solar Inc. (NASDAQ: FSLR) has fallen below $100/share to establish a new 52-week intra-day low so far of $96.58 for a severe psychological hit to solar investors. And the news out of China is no better.

JA Solar Holdings Co., Ltd. (NASDAQ: JASO) has issued a preliminary second quarter report revealing that the company’s gross margin is likely “to be in a negative low single digit range.” On top of that, a query from Australian-based Bronte Capital has called into question the financial reporting of Trina Solar Ltd. (NYSE: TSL), a query which the company rebuts. Other Chinese solar PV providers JinkoSolar Holding Co., Ltd. (NYSE: JKS), LDK Solar Co., Ltd. (NYSE: LDK), Suntech Power Holdings Co. Ltd. (NYSE: STP), and Yingli Green Energy Holding Co. Ltd. (NYSE: YGE) are getting bombed again today as well.

JA Solar notes in its announcement that the company shipped its targeted number of panels for the second quarter, but that price erosion has simply eliminated any profit. The company also notes that it sees “promising signs that both orders and volume shipments have increased.” JA Solar expects growing demand to stop the bleeding and the company expects “gross margins in the second half of the year to improve significantly from second quarter levels.”

This has been a common theme in the sector, but aside from such pronouncements, there is little reason to believe these based on fact, especially given the sharp downturn in the prognosis for the ailing global economy. Germany and Italy, historically the two largest buyers of solar PV, face a variety of Eurozone debt woes that are likely to get worse before they get better. The US economy is growing a snail’s pace and is unlikely to get much stronger in the second half of the year. How this situation translates into improved margins for solar PV providers is difficult to see.

The attacks on Chinese solar PV makers related to their accounting practices are also weighing down the sector, and it is reasonable to expect the attacks to continue. In this latest instance, Trina may not have done anything untoward, but combined with the recent resignation of one of the company’s directors, who was also the CFO at battery-maker A-Power Energy Generation Systems, Ltd. (NASDAQ: APWR), appearances are affecting reality.

In addition to the conflagration at First Solar, JA Solar has fallen nearly -10%, to $3.65, a new 52-week low. Trina has also posted a new 52-week low at $13.82. JinkoSolar set a new low at $15.51, LDK is down nearly -6.5%, setting a new low at $5.10, Suntech has posted a new low at $5.53, and Yingli is down more than -8%, posting a new low at $5.12.

After about 90 minutes of trading today, the DJIA is down more than -2.5%. The solar PV stocks add their own bad news on top of the collapsing Dow and the carnage only gets worse.

Paul Ausick