Avi Salzman
For years, U.S. officials have complained about Chinese companies ripping off American technology to build their own industries, a practice known as "technology transfer." In industries like autos, Beijing required U.S. companies set up joint ventures with Chinese firms, which helped jump-start China's domestic auto industry.
Now, there's evidence that the transfer is going in the opposite direction. A Chinese solar module factory in Texas was just sold to a U.S. company. U.S. executives say the sale will pave the way for China's cutting-edge solar tech to come to the U.S.
Trina Solar, a top Chinese solar manufacturer, announced last week that it will sell its factory in Wilmer, Tex. to American company FREYR Battery. The factory has already started some production, and is expected to ramp up to produce five gigawatts annually, or at least 10% of U.S. demand.
In an interview, FREYR executives said the deal could help U.S. companies finally catch up to China in solar. This deal "begins that technology transfer to the West. It begins to train the skilled labor force," said FREYR CFO Evan Calio.
Financially, the deal is a head-scratcher. Trina is one of the world's most productive renewables companies, shipping 65 gigawatts of solar panels in 2023 -- enough to power many million homes. FREYR, which went public through the SPAC process in 2021, has no production or revenue. It moved its headquarters from Europe to the U.S. this year, and just pivoted its business model from battery production to solar manufacturing.
But the deal makes political sense when Chinese companies face overt hostility from many U.S. politicians.
"There is political concern," said FREYR CEO Dan Barcelo. It's a benefit that "we now have control of this asset. We have control of it. We're a U.S. company, a U.S. taxpayer."
In addition, "investors can now invest in this directly," Barcelo said. Trina was once traded on the NYSE, but was delisted in 2017 and now trades in China.
Trina didn't respond to questions about whether politics forced the sale. The company said in a statement that it sold the factory because "the company believes that by working closely with FREYR and by drawing on FREYR's local advantages, Trina Solar will further expand its brand awareness and sales in the U.S."
Trina will receive $100 million in cash, $150 million in preferred notes and a 19.08% equity stake in FREYR, pending regulatory approvals. FREYR expects to produce $75 to $125 million in adjusted earnings from the factory next year.
Beyond the financial details, the deal says a lot about the relationship between the U.S. and China heading into Donald Trump's second term.
China dominates global solar manufacturing, with a market share of 80% for solar modules and over 90% for other components.
The U.S. solar manufacturing industry was once the envy of the world. But the country is a tiny player now, just as solar becomes a substantial power source for the energy transition. In solar modules, the building blocks of panels, the U.S. accounted for about 5% of market share in 2023. Arizona-based First Solar is the country's only major U.S. solar manufacturer.
The Inflation Reduction Act has begun to change the industry's fortunes. The 2022 law added tax credits for domestic manufacturing, compelling several companies to announce plans to build factories. Still, it has been slow-going.
Chinese companies have ramped up production and driven prices relentlessly lower, making it difficult for American firms to catch up. China controls most of the basic materials for solar panels, including the factories where polysilicon is made into solar cells, the building blocks for modules and panels. FREYR will get its polysilicon from both the U.S. and Asia, and its solar cells from Asia. It's exploring whether to build another factory for cells in the U.S.
So far, the U.S. has tried to keep Chinese panels out by ramping up tariffs or outright banning panels produced in regions of China that regulators say use forced labor.
Chinese companies still want access to the U.S. market, so they have begun to build factories in the U.S. The Inflation Reduction Act allows companies based in foreign countries to qualify for tax credits as long as they set up shop in the U.S.
Several major Chinese solar companies, including Jinko Solar, JA Solar and Longi, have been planning or building factories, with enough capacity to serve about half the U.S. market, according to Reuters.
Some U.S. politicians have objected to the idea that Chinese companies could receive the tax subsidies in the Inflation Reduction Act. Four senators -- two Democrats and two Republicans -- introduced a bill this summer to ban China from receiving tax subsidies. "Communist China has been working to circumvent U.S. laws and undermine American manufacturers in the solar industry for years," said Sen. Rick Scott, a Republican from Florida.
There is some debate about whether president-elect Donald Trump would also look to block Chinese companies from building factories in the U.S. Trump levied tariffs on Chinese solar panels during his first term.
But some strategists expect him to welcome foreign investment, as long as it benefits American workers and GDP. Marko Papic, chief strategist at BCA Research, points to comments Trump made in his nomination speech at the Republican Convention. "The way they will sell their product in America is to build it in America, very simple," Trump said.
"President Trump has been saying it loud and clear -- to anyone who wants to hear -- that he intends to force China to build factories in the U.S. and employ Americans," Papic wrote in a recent report.
Asked about Trump's solar manufacturing policy, a Trump transition team spokeswoman said only that "he will deliver" on his promises.
Trump may indeed be open to Chinese companies setting up shop in America. But the deal between FREYR and Trina shows that some firms are already hedging their bets. It's one possible path forward for America's sputtering solar industry.
Write to Avi Salzman at avi.salzman@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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November 13, 2024 02:30 ET (07:30 GMT)
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