June 18, 2007 4:00 AM PDT

Chinese challenger aims for top spot in solar tech

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Suntech's story, oddly enough, starts in Australia. Suntech founder Shi was conducting solar technology research at the University of New South Wales in the mid-1990s. (Suntech's CTO and many of the company's researchers are still based in Australia). While there, he founded CSG, a thin-film solar company.

In 2001, Shi founded Suntech with the idea of capitalizing on China's low labor costs. The timing couldn't have been better. Germany's generous subsidies for solar panels caused demand to soar worldwide.

"Essentially there was a shortage, which was magical for them," said Navigant Consulting's Mints. "Customers were saying, 'I don't care if (the panels) come from China.'"

Because of the costs of shipping the panels to Germany, Suntech's products actually sold for more than competitors' products in some instances, she said. Still, high demand overcame any objections.

Chan, though, asserts that the company has begun to exploit an advantage in cost, and that the gap will get wider. A silicon solar cell costs about $2.90 to make, he says. Established manufacturers, who buy silicon under long-term contracts, have to put about $1.50 worth of silicon into the cell. That leaves about $1.40 to cover other expenses. (Solar cells are then wired together into solar panels, which you see on roofs, but the bulk of the manufacturing costs are associated with the cells).

By contrast, Suntech until recently had been paying $2.20 for its silicon and covering everything else with 70 cents. It had to buy it on the spot market because silicon manufacturers wouldn't sell it under long-term contracts until this year.

"When you have an IPO, they start to talk to you," Chan said.

Under its new long-term contracts, Suntech will be able to put out cells for around $2.20: $1.50 for silicon costs and 70 cents for other expenses. That extra margin will either feed profits or, more likely, help the company in price wars.

CIBC World Markets' Osborne identified other cost advantages for Chinese companies. Labor costs for a Chinese company amounts to about 4 percent to 6 percent of revenue. For a U.S. company, labor amounts to about 10 percent of revenue. Research and development in China comes to about 1.5 percent of revenue; for the U.S. it's closer to 10 percent. The Chinese government also gives companies based there income tax holidays.

Meanwhile, domestic demand could start to build, giving local manufacturers an edge. The Chinese government has begun to impose regulations to increase the amount of renewable energy consumed in China. Now, Suntech sells roughly 10 percent of its solar panels to China, but 90 percent of these are then re-exported to the West.

Nonetheless, managing growth is easier said than done. Suntech's stated goal, after all, is to triple manufacturing capacity in about three years as well as to move into new product areas like thin film and solar roof tiles. The company will also have to hire sales representatives in Europe and North America. In the early days, Shi handled a lot of the German sales calls, said Chan.

These sales reps will require Western-level salaries. That will take some adjustment for the company, which has been able to get by on a lower executive budget.

Competition among Chinese companies has also been eroding margins, according to an April research note from Dave Edwards at ThinkEquity Partners.

Still, Suntech and Germany's Q-Cells are worth watching, said Mints.

"They are very aggressive," she said.

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Workers - $200 Per Month
China loves that slave labor.

<a class="jive-link-external" href="http://chinaview.wordpress.com/tag/social/employment/slave-labour/" target="_newWindow">http://chinaview.wordpress.com/tag/social/employment/slave-labour/</a>
<a class="jive-link-external" href="http://www.humanevents.com/article.php?id=16577" target="_newWindow">http://www.humanevents.com/article.php?id=16577</a>

Most Americans keep buying without regard.
Posted by DecliningUSDollar (56 comments )
Reply Link Flag
More than the minimum wage...
...in most developing countries.

In South Africa, the minimum wage in most unskilled labour sectors would be just over US$200, and South Africa is considered to have uncompetitively high labour costs.

I would say that for unskilled assembly work they are not doing too badly by developing world standards.
Posted by Flytrap (82 comments )
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Glass houses - throwing stones,,,,,,,
did I read your post right?

Are you sure you should raise the issue of slave labour?

I'd like to see a dollar value placed on the add-ons to their stated incomes.

I wonder just how much lower their living standards are compared to similarly placed illegal immigrant workers in the U.S.A.

Look real hard around you, can you see any underpaid &#38; underprivileged?

Slave labour is a part of your past history &#38; is with you in the present.
Posted by m.o.t.u. (96 comments )
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Apples and Oranges
You cannot compare wages in China (or that of other many other countries) to the wages in the US. Instead, you have to consider the cost of living there.

I could not find a figure for the cost of living in Jiangsu (where Suntech is based), but the did find a figure for Shanghai, which is one of the most expensive places to live in China. Cost of living there is around $180-200 per month.

Considering the article states that this is about how much the Suntech workers are paid, in addition to "housing subsidies, free food and an on-site medical clinic," I'd say they're paid pretty well.
Posted by brief (186 comments )
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