Solar Investing Rule #5:
Higher barriers to entry are needed, or else nobody in solar will be able to maintain decent margins or consistent profit growth.
Buffett's "deep moat" can be achieved by a proprietary technology (like QCOM), or manufacturing excellence (INTC or TM), or excellent management (JNJ), or a brand (KO).
As the solar industry matures, the dominant companies will consistently fend off attacks on their turf, while maintaining both margins and market share. Companies that show they can do that once or twice, will likely continue to do so for many years, and be excellent investments. Those few companies will grab most of the available profits in solar. So far, nobody has that track record. FSLR is the only one that comes close.
It is a good sign, that Applied Materials tried and failed in solar. They are a big company, in an industry with related technology, they put a lot of effort into solar, and it didn't work. They, and the companies who bought their SunFabs, proved it isn't as easy as it seems, to enter the solar industry.
It will be interesting, to see if GE is able to compete successfully with FSLR in CaTe. Betting against GE's engineers and management has been a losing bet, for about a century. If FSLR can fend off that attack on their turf, it will discourage other potential entrants.
Low labor costs and easy government-supplied credit are not a "deep moat". TSL and STP will go the way of SPWRA and Q-cells, if those are their only advantages. |
