We don't know what was said behind closed doors, but it has become clear that SunPower's (NASDAQ: SPWR) announced acquisition of SolarWorld Americas earlier this week was driven by more than just economics. CEO Tom Werner told me the deal "aligns" SunPower with the Trump administration's desire to have more U.S. manufacturing, and the company's management is clearly trying to appease the administration.
For SunPower, the real payoff from this deal won't derive from gaining SolarWorld's manufacturing plant -- the key benefit will come if it wins an exclusion from tariffs for its high-efficiency solar cells and panels, which are made in Asia. SunPower is the only global manufacturer that produces interdigitated back contact (IBC) solar cells at scale, and no U.S. manufacturers use the technology today. Based on the uniqueness of its offerings, and the lack of a domestic competitor, the company has argued it ought to be excluded from Trump's tariffs -- which were, as followers of this saga will recall, imposed as based on a trade case brought by Suniva and ... SolarWorld. If SolarWorld's new parent gets an exclusion, it could equate to an approximately $100 million annual windfall for the company -- entirely justifying the (undisclosed) price it's paying for the business.
Image source: SunPower.
SunPower's IBC exclusion application had already led to discussions with the Trump administration. While we don't know exactly what was said in those meetings, we do know the company thinks buying SolarWorld Americas makes getting the exclusion more likely. And just prior to the announcement of the merger deal, SolarWorld told the government it backed SunPower's request.
Certainly it would be hard to argue that the acquisition is being made based on its direct financial value, or to boost SunPower's operations. SolarWorld's products are sold at a premium compared to Chinese-made commodity panels, and they still aren't profitable, which is part of why the business was for sale. SolarWorld Americas' parent company, SolarWorld Industries Gmbh, based in Germany, filed for insolvency last year, and is trying to shed assets. It has been looking for a buyer for its U.S. unit for about a year.
The impact of an IBC exclusion
SunPower management has said Trump's tariffs will cost the company $1.5 million to $2 million per week. If we look at its financial guidance for 2018, management expected to be adjusted EBITDA "positive" before an exclusion, so we can now estimate that an exclusion would leave the company with about $50 million in total adjusted EBITDA this year (assuming 6 months of exclusion) and another $100 million of incremental EBITDA next year.
SunPower's management has also said they expect the company to turn the corner to profitability late this year, so a tariff exclusion could push that transition forward. In other words, the IBC exclusion could be worth playing politics for.
Is this part of a bigger move back to the U.S.?
Improving its chances of getting a tariff exclusion for its high-efficiency IBC product may be the main driver of SunPower's SolarWorld Americas acquisition, but there could be more to it.
SunPower's P-Series solar panel, which is built using commodity cells in a way that makes it slightly more efficient than traditionally manufactured panels, could factor into a U.S. manufacturing strategy as well. The company plans to convert 25% to 50% of SolarWorld's 550 MW in panel manufacturing capacity to P-Series, but that could be just a start.
Modern solar manufacturing facilities have the capacity to churn out 1,000 MW of product or more annually, so to make it competitive, SunPower will need to expand the Oregon plant, or build a new one. This deal may have laid the groundwork for the company to work with the Trump administration on a subsidy package that would make that U.S. manufacturing expansion more financially feasible.
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