Canadian Solar faces a tough road due to Chinese competition, Tim Nash says

If you’re an ethical investor who likes to bet on renewables, then Canadian Solar (Canadian Solar Stock Quote, Chart NASDAQ:CSIQ) is for you, says sector analyst Tim Nash, who cautions that falling solar panel prices may be good for the environment but less so for this company’s bottom line.

Guelph, Ontario’s Canadian Solar has had an up-and-down 2018, dropping precipitously in early June in response to China’s decision to trim its solar installations and then rising over the next few months on revelations that demand for panels was increasing, this time as a result of the Trump Administration’s decision to put tariffs on foreign panels, which took aim specifically at China’s production.

Then, CSIQ popped again in November as investors reacted to third quarter earnings which featured net revenue up 18 per cent over the previous quarter to $768 million. Gross margin also grew from 24.5 per cent in Q2 to 26.1 per cent in Q3. At the same time, management scaled back its revenue guidance for 2018 for the second time, citing a drive for stronger profitability.

But overall, manufacturing costs are continuing to decline, thus setting up a tough road ahead for the company, says Nash, founder of Good Investing, to BNN Bloomberg.

“Canadian Solar got hit pretty hard when China went big into green technology,” says Nash. “They were one of the larger solar panel manufacturers, and it was coming out of the great recession when we made a big loan to the auto sector here and China went heavy into green energy and in doing so essentially flooded the market with cheap solar panels. So that’s why [Canadian Solar] has had a bit of a tumultuous time.”

“For me, this is a company in the solar space that if you want to bet on the growth of solar panels, then absolutely,” he says. “The problem is that the price of solar panels has been dropping so dramatically, it’s great for us, it’s great for the planet, but it has really hurt their margins.”

A new report commissioned by sector trade group the US Solar Energy Industries Association and written by Wood Mackenzie has found that solar installations in the United States dropped by 15 per cent over the third quarter of 2018, thanks to US tariffs placed introduced this past January on non-domestic panels. The report states that growth is nonetheless expected across the industry in the US.

“Developers originally planning to bring projects online in Q3 2018 were forced to push out completion dates to Q4 2018 or Q1 2019 due to uncertainty around tariffs,” said Colin Smith, Senior Analyst at Wood Mackenzie, in a press release. “We did, however, see utility PV procurement outpace installations fourfold in Q3, showing that despite the tariffs causing project delays, there is substantial growth ahead for the U.S. utility PV sector.”