Chinese tariffs cause wave of changes to solar inverter manufacturing
The Section 301 tariffs on Chinese inverters are forcing many companies to make big decisions, even though the expected jump from 10 to 25% tariffs set for Jan. 1, 2019 has been stalled for 90 days of negotiation. Out of the 18 company reps that answered Solar Power World’s solar inverter manufacturing survey, more than half said their companies will be affected in some way by the Chinese tariffs. Even those without manufacturing facilities in China are bound to feel some tariff effects—for example, the control boards used in most inverters are still made cheapest in China.
Of the companies that said they will be affected, some had long been planning for the worst, often coming up with mitigation strategies as soon as President Donald Trump was sworn in. Some have initiated backup manufacturing facilities outside of China. Others are staying in China but passing the tariffs on to the customers. Others still have stocked North American shelves with Chinese-manufactured inverters before the tariffs came into effect and hope those will last until the tariffs end.
Companies are taking different approaches to place themselves in the best possible position in case tariffs increase after the negotiation period ends in March.
Sungrow Power Supply saw impending Chinese tariffs as soon as Trump became president. The company’s sole manufacturing hub at the time was in China, so it decided to take over a facility in Bangalore, India, with 3 GW of annual production capacity in case a trade war began.
The company’s Chinese plant has a staggering 36 GW of annual production capacity, so the small India plant exists only to supply inverters to the United States.
The plant in India is producing some string and central inverters for the U.S. market now, but Sungrow would move 100% of U.S. inverter production to that plant if the tariffs increase from 10 to 25% after the negotiation period. The Chinese plant would still supply inverters to its other markets in China, South America and elsewhere.
A Sungrow spokesperson said the company plans to do everything possible to make sure its customers don’t feel the tariff impacts. There have been no price increases yet.
Hank Wang, president of Sungrow Americas, said in a statement: “We remain optimistic that an agreement between the two nations will be reached amicably and we can put this behind us. That being said, Sungrow Americas is largely unaffected by any Section 301 situation, as our 3-GW factory in India is activated to support the U.S. market with ‘tariff-free’ string and central inverters.
“As a result, our customers will not feel any negative consequences from the tariff; such as a price increase. We’re witnessing tremendous growth in the U.S. market, particularly in the utility-scale segment, and are fully committed to continuing our accelerated progression.”
Similarly, in September 2018, microinverter manufacturer Enphase announced it expanded its contract with multinational technological manufacturer Flex in Mexico as part of a mitigation plan for the Section 301 tariff. It currently manufactures inverters in China, but starting in Q2 of 2019, Flex Mexico will make Enphase Energy’s products for the U.S. market.
CPS America manufactures the core powerhead of its string inverters in China but announced in July 2018 its plans to bring manufacturing of some of the more customizable aspects of the inverters to Texas.
General manager Ed Heacox said the company also has access to sister divisions of CPS America that have operating manufacturing sites in Southeast Asia, outside of China.
“These sites are primary options. No tariff,” Heacox said. “Also, we have assembly ability in Texas which can cut the tariff to less than half.”
OutBack Solar manufactures two inverters in China, and VP of commercial operations Brandon Provalenko said he doesn’t mind moving those products out if the tariffs increase.
The company is considering following Enphase’s lead and moving U.S. inverter manufacturing to Flex in Mexico. Provalenko said there’s no reason to risk keeping operations in China if OutBack has the option to move them out. One part of OutBack’s inverter will remain in China though—the control panel is still the cheapest to make there, even with the possible addition of a 25% tariff.
OutBack’s cost to manufacture inverters has already increased with the Section 232 steel and aluminum tariffs, and its customers saw a price increase of 10% in September 2018. Provalenko said OutBack passed the costs “buck for buck” to its customers, but the company doesn’t expect to do any more price increases based on tariffs.
Despite the hiked prices on the customer’s end, Provalenko said he’s in favor of the tariffs. He said in the short term, tariffs could level the playing field between companies that manufacture inverters in China and the United States. But he expects that in the long term, many manufacturers will just move manufacturing or supply out of China.
Battery-based inverter manufacturer Sol-Ark produces inverters in both China and Texas, but does not expect to have to raise prices. In a press email in November 2018, Bob Mitchell, solar consultant for Sol-Ark, said many of the company’s competitors have already implemented price increases to offset the additional cost, but that it’s doing its best to keep prices affordable. However, if the 25% tariff increase sets in, Mitchell said in the email that it will be difficult for Sol-Ark to maintain its current prices.
Tigo Energy also manufactures its power optimizers and rapid shutdown devices in China. Tiffany Douglass, director of global marketing for Tigo, said customers are responsible for the import duty, but the company is trying to address this issue.
“Tigo is continually investigating alternatives to minimize the tariff’s impacts by relocating manufacturing or other measures,” Douglass said.
All but one of SMA Solar’s U.S. inverters are manufactured in Germany, so the company is mostly clear of tariffs, according to a spokesperson. Its TS4-R optimizer device is the only one produced in China, but SMA has stocked up on pre-tariffed units to avoid the higher import prices.
Yaskawa Solectria Solar’s XGI and XTM inverters are made in Massachusetts and are free from tariffs, but its TL inverters are made in China. When the tariffs were first announced, Yaskawa Solectria worked with its vendors and suppliers to adjust its margins and absorb most of the tariff, said Samantha Olsen, marketing specialist for Yaskawa Solectria. The company has still had to raise its prices by 3.6%, but it has imported a large inventory of Chinese-manufactured TL inverters so the price doesn’t have to climb higher if the tariff jumps to 25%.
“We hope this inventory will last us quite a while so minimal impact will reach our customers,” Olsen said. “We are also actively looking into alternative locations to manufacture the TL series of inverters and move manufacturing out of China.”
Some companies that never called China home for manufacturing could see increased demand during this trade turmoil.
ABB manufactures its inverters in Italy and India and a spokesperson said it expects no impact on inverter business from the tariffs. Hanan Fishman, president of power optimizer company Alencon Systems, expressed similar thoughts.
“As an American manufacturer, it certainly gives us a cost advantage in the near term,” Fishman said. Alencon optimizers are made in Pennsylvania.
But Fishman also stresses that a trade war with China touches more than just Chinese inverter manufacturers.
“It is important to understand that we live a world with a global supply chain. So even though we build our products in the U.S., invariably there are some number of components in our products (typically small electronics made on our PCB) that are made in China,” Fishman said. He said Alencon will still indirectly be affected by the tariffs.
Fronius manufactures its inverters in Austria, so it’s also technically free from tariffs. Richard Baldinger, head of marketing and inside sales support for Fronius, said that if tariffs jump to 25%, he thinks there will be some significant shifts in the market.
“Even though the inverter is not the biggest cost factor in a PV system, a 25% increase cannot easily be absorbed in the overall project. This is where customers will start looking for alternatives, both for brands that do not manufacture in China and inverter technologies that provide more cost-effective solutions by its nature, such as string inverters,” Baldinger said.
But the company isn’t throwing a tariff party.
“However, we at Fronius, as a manufacturer in the solar industry, oppose tariffs due to its negative impact on the industry as a whole,” Baldinger said.
The industry is not waiting around to see what will happen after the 90-day negotiation period between President Trump and Chinese President Xi Jinping. It’s moving quickly to come up with solutions before higher tariffs are imposed.