Solar's War of the Dead
The fight for survival among the world's embattled solar panel makers is starting to look more like a battle of the dead, with word that bankrupt US player Solyndra is suing 3 of its biggest Chinese rivals over allegations of running an illegal cartel. Some of you might be saying: "Wait a minute, doesn't Solyndra have better things to do than to be filing lawsuits against rivals who are also flirting with bankruptcy?" If that's the question, then the answer appears to be "no". Perhaps the failed Solyndra is still seeking some final respect, and also perhaps some money through a quick settlement of this lawsuit to repay a long list of creditors that includes the US government.
Solar energy historians will recall that Solyndra's bankruptcy filing in August 2011 was the event that sparked a US anti-dumping probe against Chinese solar panel makers over allegations of unfair state-support through policies like low-interest loans and export rebates. That investigation resulted in the announcement of large punitive tariffs against Chinese solar panel makers just last week, with the actual tariffs set to take effect by the end of the year.
In this latest wrinkle to the story, Solyndra has filed its lawsuit in California against a number of Chinese solar firms, including sector leaders Suntech (NYSE: STP), Trina (NYSE: TSL) and Yingli (NYSE: YGE). The lawsuit claims the Chinese firms schemed with each other to flood the US market by selling panels there at prices that were below costs. If that was there intention, then the Chinese firms certainly succeeded spectacularly, so much so that the entire market is now going through its worst-ever crisis as prices have plunged to unsustainably low levels due to a massive supply glut.
Yingli and Trina both issued statements over the weekend denying the allegations and saying they would defend themselves vigorously in the case. (Yingli statement; Trina statement) Personally speaking I think the claims in this lawsuit do seem hard to believe, as Chinese solar cell makers are an extremely competitive group don't seem organized or willing enough to work together for the kind of collusion that the lawsuit describes.
That doesn't mean that the bigger claims of unfair state support aren't true, as I also do believe that all of the Chinese firms get big backing from both Beijing as well as their local governments. That support will most likely continue in the months ahead, with word that China Development Bank, a Beijing-based policy lender, is busy working on a rescue package for about a dozen of the industry's top players. (previous post)
What's more likely with the Solyndra case is that the US company is in the process of liquidating its assets to pay off creditors, and perhaps hopes it can get a quick settlement from the Chinese companies to earn just a little more money to make those repayments. Readers may recall that one of those creditors just happens to be the US government, which guaranteed a $535 million loan for Solyndra.
But to return to my original metaphor about a battle of the dead, this new lawsuit does seem like an ominous development for a group of companies already fighting for survival amid a downturn that is showing few signs of easing. Suntech, once considered an industry pioneer and sector leader, recently received an emergency $32 million government loan just to keep its operations going for the next few months; and I'm sure that Trina and Yingli are probably facing similar cash crunches.
I could easily see other US and European solar panel makers like First Solar (Nasdaq: FSLR) and Solar World (Frankfurt: SWV, OTC:SRWRF) filing similar lawsuits, and the cash-starved Chinese companies could even start to attack each other if they thought such tactics could improve their own chances for survival. If and when that happens, look for the inevitable consolidation among global solar panel makers to turn quite ugly, pitting a group of zombies against one another as each battles to be the last one still walking.
Bottom line: A lawsuit by Solyndra against Chinese solar panel makers could be the start of a wave of litigation within the sector as players battle for survival.
Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .