Nanosolar's CEO on Competing with China

Given that I've been somewhat obsessing and in awe of the progress solar energy has made since I had last checked. Nanosolar in particular as noted earlier may be the first company to sell panels at an effective price of less $1/Watt of capital investment for a target cost in the 60 cent range. This would make it cheaper than gas/coal though their first plant still appears to be somewhat modest in capacity relative to other forms of energy (up to 430 MW versus a nuclear plant that may easily produce 800 MW+ though Nanosolar's 430 MW would represent a significant addition to global production capacity estimated at only 1000+MW/year). I came across a quote from a Q&A with CEO of Nanosolar did last September

Q). An analyst told me that thin film solar companies in the U.S. are worried about price competition with Chinese solar firms. . . .is that true and something Nanosolar thinks about competitively?

A). If I ran a company based on solar thin films deposited in high-vacuum chambers, I’d worry too. Because [Chinese market leader] Suntech achieves better capital efficiency today with conventional silicon-wafer based solar factories than a typical thin-film vacuum line. That’s a problem right there. At Nanosolar though, we have a nanoparticle-based printing process that is 5-10x more capital efficient on the total line. So we have a good delta.

All things being equal, given the $/kg economics of solar panels, I don’t think the competitive end game is to be shipping them from China. The end-game winners will be optimized for net working capital days and proximity to customers. (Btw, shipping from China costs ten times as much as shipping to China these days…) The middle game will be dominated by quality issues; this is a product that people expect to last for decades.

Quality is quite hard to do with the kinds of manual factories that are behind the capital efficiency of Chinese production lines. I see a lot of big customers in Europe quite unhappy with Chinese panels. That all said, my general rule on China is that one has to recheck all of one’s assumptions about China about once every three months.

A few points to highlight:

• China replaces capital costs by using cheap labor. By its nature, manual production however has more inherent quality problems.
• Some companies like Nanosolar in the US and Canada tend to have a technical / innovation advantage that allows them to use capital to produce products more cost effectively. Sustainable advantage is achieved through innovation. Others fail or ultimately need to rely on low labor cost environments in order to compete.
  
• Cost of shipping from China to North America is indeed about 5-10x the cost of shipping a container back. This friction is the hurdle the cost of labor must overcome in order to be cost effective (among others not mentioned like inventory costs while goods are travelling and trade risk between buyer and seller who sit on opposite continents)
  
• Finally, I like his final quote "my general rule on China is that one has to recheck all of one’s assumptions about China about once every three months." Quite true.