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Tariffs will not stop JinkoSolar's US expansion, executives say

SNL Image

Solar panels at a 2-MW array in New Mexico.
Source: Associated Press

Executives at China-based JinkoSolar Holding Co. Ltd. indicated March 22 that the manufacturer is moving ahead with plans to assemble solar panels at a plant in Jacksonville, Fla., regardless of whether it is exempt from new tariffs on imported solar cells.

The company on March 16 told the Office of the U.S. Trade Representative that its ability "to create and expand panel production in the United States ... will be limited without the ability to import the subject cells free from the tariff." However, JinkoSolar executives on a March 22 earnings call downplayed the importance of an exclusion. While the company is "in the process" of seeking an exemption, "we don't anticipate any impact or change on our plans," CFO Haiyun Cao said.

"The enactment of ... tariffs for [crystalline silicon] solar cells and modules left a lot of details to iron out, but it won't disrupt our plan to invest in a production facility in the U.S.," JinkoSolar CEO Kangping Chen said through a translator. The plant, which will give JinkoSolar "a first-mover advantage and more flexibility to support our local partners," will begin shipping panels in the second half of 2018, he said.

A JinkoSolar representative did not immediately respond to a request for comment March 22.

According to documents from the city of Jacksonville, JinkoSolar plans to spend $50.5 million on a facility with 1,500 MW of panel production capacity. A majority of the panel components initially would be imported from China through the Port of Jacksonville.

The company was the first foreign manufacturer to announce a large-scale U.S. panel-making facility to take advantage of a provision in the solar tariffs exempting the first 2,500 MW of imported cells annually, Credit Suisse analysts said. In February, Credit Suisse identified 4,450 MW of demand for tariff-free cells in 2019, far in excess of the 2,500-MW quota.

JinkoSolar reported fourth-quarter 2017 net income attributable to ordinary shareholders of 22.5 million yuan, or $3.5 million, compared to net income of 145.8 million yuan a year earlier. Kangping Chen said earnings were below expectations due in part to high raw material costs, including for polysilicon. Higher raw material costs, as well as the appreciation of yuan against the U.S. dollar, caused the company's gross margin to fall to 11.6% in the fourth quarter of 2017 from 14.3% a year earlier.

Revenues rose by 24% year-over-year to 6.35 billion yuan. Lower selling prices partially offset gains from a 43% increase in panel shipments year-over-year, the company said.

The company, which shipped 2,481 MW of solar panels during the fourth quarter of 2017, expects to ship between 1,800 MW and 2,000 MW this quarter. Panel shipments are expected to total between 11,500 MW and 12,000 MW in 2018, compared to 9,807 MW in 2017 and 6,656 MW in 2016.

More than 70% of the company's capacity is booked through the first half of 2018.

International business

Emerging markets have become the biggest growth driver for JinkoSolar, Kangping Chen said, pointing specifically to Latin America and Australia. Markets in the Middle East and Africa also are expected to generate "substantial growth," he said.

India, which aims to have 100,000 MW of solar power installed by 2022, also showed "impressive" growth in 2017, but a new round of anti-dumping trade investigations "has cast a shadow on the future growth prospects," said Gener Miao, JinkoSolar vice president of global sales and marketing.

Emerging markets accounted for approximately 40% of shipments in the fourth quarter of 2017, Miao said. China and the U.S. tied for the second spot, followed by Asia Pacific and Europe.

For all the opportunity JinkoSolar sees in emerging markets, Miao said China "is still the largest and most important market." He expects around 45,000 MW of solar installations in China in 2018 compared to 53,000 MW in 2017. The U.S. installed approximately 10,600 MW of new solar capacity in 2017, according to GTM Research and the Solar Energy Industries Association, a trade group. Installations are expected to be flat in the U.S. in 2018.

"We expect the first half of this year to be relatively quiet in the U.S. as it undergoes a period of rebalancing. And after that, demand will gradually recover to a normal level," Miao said.

The solar manufacturing sector recently has been swept by a wave of privatizations, and JinkoSolar is one of the only big foreign panel producers planning to maintain a U.S. stock listing. Shareholders in China-based JA Solar Holdings Co. Ltd. on March 12 approved a takeover proposal from an investor group led by the company's executive chairman and CEO, Baofang Jin. In December 2017, Canadian Solar Inc. founder and CEO Xiaohua "Shawn" Qu proposed buying out the manufacturer and power plant developer, which is based in Ontario but makes much of its hardware through Chinese subsidiaries.

Having achieved market dominance, analysts say that foreign companies would rather avoid the scrutiny and expense of maintaining a U.S. stock listing and that the U.S. also is a much less important market now than China.

JinkoSolar CFO Haiyun Cao said the Chinese government is trying to bring back "the most reputable companies" for Chinese investors. For JinkoSolar, however, a U.S. listing provides branding and financial transparency that is valuable in an international industry, he added.