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Chinese vs European Solar Manufacturers face intensifying photovoltaics competition as Chinese players leverage labor costs, cheaper module prices, and scale to win market share, shaping stock outlooks and industry profitability across cycles.
Understanding the Story
Rival solar makers; Chinese firms gain share with lower costs, pressuring Europeans and shaping solar stock performance.
- Chinese cost advantage: labor, equipment, electricity
- European firms: SolarWorld, REC face margin pressure
- Long Trina Solar; short European manufacturers
- Scale lowers module prices; boosts competitiveness
- Cyclical resilience: profits in up and down markets
The solar industry will have its place in the sun for many years but Chinese manufacturers likely will win out over European players, hedge fund manager Shawn Kravetz said.
"The Chinese will crush them European manufacturers in up markets, and they will still make money in down markets," Kravetz, who runs Esplanade Capital in Boston, said at the Reuters 2011 Investment Outlook Summit in New York, as another tough year for solar stocks loomed for investors.
Kravetz, who specializes in retail and energy stocks, is betting that European solar equipment manufacturers' stock prices will fall, even as solar equipment makers are expected to shine in a shakeout, while those of Chinese competitors will rise.
Detailing his favorite ideas for solar stocks to short, Kravetz named Germany's Solarworld, a German solar firm hit by a price war that has pressured margins, and Norway's Renewable Energy Corp . On the long side, among others, he likes China's Trina Solar.
"The Europeans just can't compete," Kravetz said, because of higher labor costs, equipment prices and even electricity costs compared with the Chinese.
Solar energy has captured the interest of investors and manufacturers in the last years, as solar sales surge across markets, in a drive to go beyond traditional fuel sources like coal and natural gas.
But the early leaders in the field, European manufacturers, are now finding that Chinese solar makers pose a real threat, Kravetz said.
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