Summary:
During the last two years, First Solar has been suffering from many financing issues on account of declined prices of polysilicon feedstock which are intensively used by Chinese manufacturers. As the price of polysilicon stabilizes, First Solar starts making more net profits and gaining more financial advantages than Trina Solar and Yingli Green Energy. Undoubtedly, as the exchange rate of Yuan to US dollars decreases, the solar module commodity becomes more valuable in dollar terms. In other words, First Solar is very likely to benefit from the rising Chinese currency mainly due to less competition from Chinese manufacturers resulting from the constant increase of Chinese labour cost. Moreover, the rising oil prices are inversely proportional to First Solar's production costs. Therefore, when the oil prices increase First Solar will have a higher production margin.
Connection:
The connection to Chapter 3 would be the gross margin which is the difference between sales and cost of goods sold. In order to maximize the profitability of a company, a reasonable production margin need to be set by the management of the business. Production margin can not be too low or too high, since it affects the volume of sales of a business. By examining the gross margin., management can assess the profitability of the company. In this case, as the oil price rises, the production margin of solar panels will increase as well, which will bring a higher gross profit. In other words, the rising price of oil increases the profitability of First Solar by increasing the gross margin. Another connection can be found in this article would be comprehensive income. Comprehensive income is the total change in the shareholder's equity of the enterprise from non-owner sources. When the Chinese currency increases, the solar module commodity has a higher value dollar terms. This benefit from the rise of Chinese currency is not part of net income, but is included in comprehensive income.
Reflection:
when Chinese currency strengthens gradually, Chinese manufacturers need to lower the unit price of solar panel slightly in order to fit in the global market. However, labour cost and other expenses are not very sensitive to the increased exchange rate, they will, therefore, drag the competiveness of the Chinese businesses. First Solar is totally benefited by this because the changed exchange rate does not have any bad impacts on First Solar. In addition to the aforementioned factor, the high efficiency of the product also contributes to its higher competitiveness compared to the products of Trina Solar and Yingli Green Energy. Furthermore, the oil prices are inversely proportional to the unit price of solar panel. As the oil prices increase, the demands for solar panels will increase dramatically resulting in a higher unit price. Similarily, the gross margin will rise in response to the incline of unit price. Overall, First Solar's competitiveness and profitability would increase to a certain extent due to the rising Yuan.
After reading this article, I agree with you that First Solar profitability and competitiveness would increase to a certain extent due to the rising Yuan because if the price of polysilicon stabilizes or increase this would help First Solar gain more advantages than the other competitors. In my opinion I think this would help First Solar recover from their financial issues from the previous two years due to the declining of prices of polysilicon and they will need to capitalize on this situation to recover. Another thing I agree is First Solar production margin will increase due to the oil prices increase. In my opinion I think this will only be determine if the demands of solar panel increase. Like you said, if oil prices increase so will the price of solar panel meaning a higher production margin.
ReplyDelete