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Squeezed by US solar tariffs, China downturn, SunPower navigates strategic shift

The climbing cost of U.S. tariffs on imported solar panels could hit SunPower Corp.'s investments into future technologies and siphon money from its planned domestic manufacturing, CEO Tom Werner said.

The import tariffs President Donald Trump introduced in January could cost the California-based solar cell and module maker, which has production primarily in Asia, $51 million in the second half of 2018, three times SunPower's penalty in the first half, the chief executive said told investment analysts on a July 30 call discussing the company's second-quarter financial results and 2018 business outlook.

SunPower hopes to receive an exemption from the 30% import tariffs "so we can take that $51 million and invest it in our [research and development, or R&D] and American manufacturing," Werner said. Otherwise, the potential cost of import tariffs in the second half could outweigh the company's outlays into next-generation technologies over the period and force SunPower to reevaluate its R&D investments, according to the CEO. "If we continue to pay tariffs, we're going to have to make changes in R&D," he said.

One crystalline solar cell technology at the center of the company's research "is a game changer for SunPower, offering high efficiency at low cost," Werner said. The company plans to begin volume production of the technology at an existing facility in Malaysia in the fourth quarter of 2018, with up to 100 MW of production forecast for 2019.

Meanwhile, SunPower's proposed acquisition of Oregon-based manufacturer SolarWorld Americas Inc., is delayed. Citing "a few challenges" that he did not detail, Werner said the deal, originally expected to close by the end of the second quarter, is on track for completion in the third quarter. The transaction would give SunPower a source of tariff-free panels whether or not the Trump administration grants the company an exemption from import tariffs.

Strategic shift

SunPower's purchase of SolarWorld Americas is also part of its previously announced transition toward more distributed generation, since the panels produced in Oregon target that market, while completely exiting power power development. SunPower now plans to accelerate that shift in the wake of the Chinese government's decision in late May to rein in the world's largest solar market, according to the CEO.

China's demand downturn is putting "significant pressure" on panel pricing, profits and factory utilization for companies focused mainly on power plants, Werner said. "Given this market dynamic, we decided to exit power plant development, and we'll be addressing this market exclusively via an equipment supply model," he said.

Residential and commercial solar sales accounted for roughly three quarters of SunPower's non-GAAP revenues in the second quarter of $447.1 million, with distributed generation installations rising 45% from a year ago. In the third quarter, SunPower expects to deploy up to 430 MW, including up to 110 MW of residential projects, up to 140 MW of commercial solar and up to 180 MW for power plants.

The company, majority-owned by French oil giant Total SA, plans to supply 1,500 MW to 1,900 MW in 2018, unchanged from its prior forecast.