Maxeon Solar Technologies Ltd (MAXN)

[Televet]

Been watching this company since it was spun off from SunPower.

Seems like a good play with all the new solar initiatives.

https://seekingalpha.com/article/4422119-sunpower-renewed-supply-agreement-with-maxeon-a-game-changer?mail_subject=spwr-sunpower-renewed-supply-agreement-with-maxeon-a-game-changer&utm_campaign=rta-stock-article&utm_content=link-2&utm_medium=email&utm_source=seeking_alpha


SunPower: Renewed Supply Agreement With Maxeon A Game Changer

Apr. 28, 2021 4:27 PM ETSunPower Corporation (SPWR)2 Comments6 Likes

Maxeon will now manufacture and supply mainstream P-Series modules for U.S. distribution.

Lower-priced P-Series modules lower the installed cost for SunPower's systems to levels more competitive with peers.

Having a mainstream product will expand SunPower's reach from a niche premium segment to the entire addressable residential and commercial market.

Minor blended gross margin decline will be more than offset by incremental gross profit potential SunPower can generate from companion products bundled with solar modules.

The first quarter is always the slowest season for the solar industry. Crazy volatility aside, the first few months of 2021 were also fairly quiet on the news front for SunPower (SPWR). However, there was one bit of news that could be very significant for SunPower but did not even make it to their press release. Early in April, SunPower's manufacturing segment spin-off Maxeon Solar Technologies (MAXN) announced an agreement amendment to their supply contract with SunPower. Maxeon now plans to sell their mainstream P-Series modules to the U.S. market. While this announcement is significant because it will open up a huge utility market for Maxeon, it could be even more impactful to SunPower's earnings in 2022 and beyond. With a mainstream-level solar module, SunPower could brand as homegrown, the company could significantly expand its market reach beyond its current high-end premium segment.

P-Series vs. IBC Modules

IBC Modules

SunPower currently offers IBC [interdigitated back contact] solar modules to their residential and commercial customers in the U.S. Their IBC modules are widely regarded as the best commercial solar modules money can buy. What differentiates SunPower's n-type IBC modules from p-type silicon-based modules widely used today are extra manufacturing steps and components. Without getting too technical, SunPower's IBC modules are more rugged and thus degrade at a lower rate compared to mainstream p-type solar modules. Higher purity silicon combined with a full-contact back-plate also make IBC cells more efficient than high-end p-type mono-PERC cells.

As a result, IBC modules perform better in lower light, intermittent shade, higher heat and humidity conditions over the warrantied lifetime. Even without negative environmental factors, IBC modules can potentially produce 10% more power over a 25-year period than higher-end mainstream mono-PERC modules with the same power output rating. With negative contributing environmental factors, the advantage could exceed 20% especially when shading is a factor. However, quality comes at a price. Total installed cost can vary by state and competing brand, but customers can expect to pay anywhere from 10% to 20% for a SunPower system with similar components. While higher upfront costs can be recovered in time due to superior IBC module performance, the sticker shock especially for customers paying in cash could make SunPower's systems a harder sell.

Mono-PERC Modules

For most of the past decade, SunPower's IBC modules held a wide efficiency gap over mainstream p-type silicon modules. Although Chinese polysilicon producers were able to ramp production to high levels at the start of the past decade, purity levels were not as high as Western incumbent producers. Scarcity also resulted in the use of silicon scraps which were recast as multi-crystalline ingots. The resulting multi-crystalline wafers were not uniform in appearance and yielded cells that were much lower in power conversion efficiency.

The polysilicon vertical has changed in the past five years. Through experience, polysilicon manufacturers in China have been able to produce higher purity polysilicon at dramatically increased volumes. This led to the rise of mono-crystalline silicon usage. The introduction of PERC cell technology further augmented mono-crystalline cell efficiencies. Today, SunPower's IBC modules are on average less than 10% higher in efficiency compared to mono-PERC modules from tier 1 peers. SunPower's efficiency advantage was as high as 30% to 40% vs. multi-crystalline counterparts before 2015.

In addition, mono-PERC modules are a lot cheaper to produce compared to SunPower's IBC modules. As I detailed in my latest Maxeon article, Maxeon's average selling price [ASP] for P-Series mono-PERC modules was $0.25/watt in Q4 2020. In comparison, IBC module ASP was double at $0.50/watt. Since module cost is only 15% to 20% of total installed cost for residential systems, the huge price gap at the module level is much less severe at the installed system level. SunPower systems using IBC modules typically cost 10% to 15% higher than systems using p-type modules such as mono-PERC. Still, this made SunPower systems a harder sell since the main bullet points on paper for mono-PERC modules are not much lower than for IBC modules. The salesman would have to convince the customer that over the warrantied lifetime, the higher upfront cost for a SunPower system would pay for itself.

The rise in mono-PERC adoption may have been a reason for SunPower's joint venture with a Chinese-based module manufacturer to manufacture their P-Series modules which are based on mono-PERC technology. For under $27 million in investment capital, SunPower was able to test the waters in terms of mono-PERC manufacturing as well as gauge end-market demand for the product. According to Maxeon in its latest earnings conference call, demand for P-Series modules especially at the utility-scale level has been extremely high. This convinced Maxeon to issue a secondary to raise almost $170 million to fund the increase in P-Series manufacturing capacity by as much as 3600 MW. This new capacity would be wholly operated by Maxeon and directed at fulfilling U.S. demand. While the bulk of this new capacity will be targeted at the U.S. utility market, a portion will be supplied to SunPower residential and commercial installations.

We expect to expand the scope of this partnership by also supplying Performance panels to SunPower for use in its DG business, broadening their offering to capture more of the available market.

Financial Impact Of P-Series Availability

If SunPower was just a module reseller, the financial impact of a new lower-priced product line would be minimal. SunPower would only be able to make whatever module-level mark-up the market allowed, and the competition is fierce since they would be competing against practically every other silicon-based module brand. However, SunPower is a residential and commercial solar installer. As mentioned above, the module cost only makes up 15% to 20% of the overall system cost. Other installed costs include wires, mounting racks, inverters, charge controllers, battery storage, and labor. Each of these cost components would need to be marked up as well, to varying degrees.


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The cumulative per watt gross margin added up to $0.50/watt in the fourth quarter of 2020. With financing options, total gross margin could be as high as $0.80/watt. If module mark-up is targeted at 25% for example, the dilutive effect of selling a lower-priced P-Series system would only be $0.05/watt to $0.06/watt. Instead of potentially making $0.80/watt on a high-end IBC system, SunPower might only make $0.74/watt for a similarly configured P-Series system. In short, the vast bulk of the company's gross margin would be made by the module's companion products within a solar system.

Having a company-branded mainstream option could be huge. SunPower is already regarded as a premium brand with high-quality solar modules. The company could use this brand advantage to both upsell and downsell systems based on a customer's needs and/or budget. P-Series systems could be priced similar to peers but under a single brand and warranty. Most installers today sell systems comprised of mix-matched brand components. The lower cost point of P-Series systems would also make commercial installations more financially rewarding by lowering the system's payback period.

In short, it would open SunPower to the entire U.S. residential and commercial market where growth is booming instead of confining the company to the high-end niche segment where growth potential could be capped. For example, competitor Sunrun's (RUN) installed volume in 2020 rose by 46% annually while SunPower's recognized volume declined by 5% from 2019. With P-Series modules available as early as the start of 2022, SunPower could potentially match peers such as Sunrun in terms of installed volume growth in the markets it competes in. If Maxeon allocates just 10% of its intended 3600 MW capacity to SunPower, SunPower's annual installed volume could grow by over 50% from the estimated 600 MW this year.

Final Thoughts

As I mentioned in my last SunPower article, one of the company's greatest investment potential is its current low market share in the U.S. residential and commercial segments. At the start of the previous decade, SunPower had 25% market share in the U.S. By the end of last year, its market share dropped to 2.5%. In the residential and commercial segments where it currently operates, its U.S. market share was 10% last year. There are many reasons for SunPower's loss of market share. A key factor, in my opinion, was not embracing mainstream p-type module technology sooner. This opened the door for peers to price SunPower's IBC based systems out of mainstream demand.

SunPower's IBC modules are superior to P-Series modules based on mono-PERC technology. Under certain situations, IBC modules do make economic sense. For example, in snow, humid, or shaded conditions, IBC modules can over the warrantied lifespan of the module produce more power than P-Series modules. However, in a lot of other cases, IBC modules would be considered overkill by not generating more power over P-Series modules overtime to compensate for the higher upfront cost. There just is not enough empirical evidence to confidently predict how much more power over time an IBC system could produce over a mainstream mono-PERC system because each individual setup is unique. As a result, convincing a budget-conscious customer to invest in an IBC system could prove difficult.

To its credit, SunPower has done a better job narrowing the gap between its IBC technology and p-type peers. Maxeon's 5/6 series modules now use industry-standard larger wafers which lower the production cost significantly compared to previous models. Maxeon 7 modules slated to be released by early 2023 have been advertised as having fewer manufacturing steps while maintaining high efficiency and power performance. If successfully deployed, these could narrow the IBC pricing premium to levels more widely accepted by the mass market. Until that happens, offering a competitively priced mainstream product could be a significant step in SunPower regaining lost market share over the next few years.