Meyer Burger Announces Halt On German Manufacturing Plant, US Focus

The massive Chinese push into Europe with the resultant high inventory levels (estimated at 90 GW, almost equal to two years of capacity additions) and low prices has claimed its first big victim.

Meyer Burger Technology AG, a long-time pioneer and technology leader in the global photovoltaic industry, has prepared a plan to cut losses in Europe and focus on profitable growth in the U.S. Meyer Burger, which does research in Switzerland and manufactures in Germany has cited the deteriorating market environment in Europe,to announce that full-scale European solar manufacturing is not sustainable for the time being.

Part of the plan would be the closure of one of Europe’s largest operational solar module production sites in Freiberg, Germany, as early as beginning of April 2024, affecting approximately 500 people. A final decision would have to be made by the second half of February 2024 in the absence of sufficient measures to create a level playing field in Europe such as a resilience-reward scheme. The solar cell production in Thalheim (Bitterfeld-Wolfen), Germany, would continue to support production ramp-up of U.S. solar module manufacturing in Goodyear, U.S. Equipment manufacturing and R&D sites in Switzerland and Germany would not be affected by these measures and continue to develop and produce technology and equipment to support Meyer Burger’s business outside Europe.

Gunter Erfurt, CEO of Meyer Burger explained: “In the U.S., we can take full advantage of our leading technology position, resulting in substantial interest by partners and supported by favourable industry policies. Given 5.4 GW of order book under offtake agreements and a potential to generate EBITDA at roughly CHF 250m (Swiss Francs) in 2026, we are able to grow a profitable business, providing a positive outlook for our shareholders. The expansion of the U.S. business is currently proceeding as planned with the ramp-up of our solar module production site in Goodyear, expected to start in the second quarter of 2024.”

2023 Financial Performance

According to Meyer Burger, a sharp increase in Chinese production overcapacity and trade restrictions imposed by India and the U.S. resulted in significant oversupply and unprecedented distortion in the European solar market in 2023. Meyer Burger’s withdrawal as a solar module manufacturer in Europe would further cement the continent’s dependence on imports from China .

Meyer Burger currently expects to conclude the 2023 fiscal year with an EBITDA loss of at least CHF 126m (preliminary unaudited figure). Given the increase in produced solar modules to 650 MW despite slumped sales, module inventory increased significantly to around 360 MW. The EBITDA was negatively impacted by underutilization of production capacities in Germany and impairments on production materials and finished products as well as by costs incurred as a result of the continued commissioning of production facilities in Germany and the ongoing expansion in the U.S. in 2023.

Funding Options

Meyer Burger ended 2023 with a cash position of approximately CHF 150m. Based on current projections, Meyer Burger requires funding of approximately CHF 450m until it becomes cash flow positive, expected during 2025 if the ramp-up of U.S. operations goes according to plan. Meyer Burger expects potential restructuring costs to be self-funded through the sale of inventory.

Several financing options are available to the company. Meyer Burger is in advanced discussions with the German Federal Ministry for Economic Affairs and Climate Protection about Euler Hermes covered export financing. Further options include a 45X (basically the monetization of future U.S. tax credits) or advanced manufacturing production credit and a loan by the U.S. Department of Energy for which Meyer Burger has successfully passed the first assessment stage. The company is also considering equity financing.

Strategic Options

In the current environment, the U.S. remains by far the most attractive market for local solar manufacturers. The U.S. market has proven conducive to a thriving domestic solar industry, which benefits from a stable cost base, fixed purchase agreements and attractive price levels. Governmental support schemes, such as the Inflation Reduction Act (IRA), further add to the existing market potential.

Pressure Tactic

While it is tempting to place the announcement as a pressure tactic on the EU bureaucracy to move faster with a better incentive scheme, it does seem likely that this move by Meyer Burger move will not be reversed. The inventory glut in Europe is an overhang that cannot be wished away by any scheme or incentive, ensuring a weak sellers market for the foreseeable future. On top of that is the furious expansions still underway in China, with major producers like GCLSI and even Tongwei, who are still warming up on their expansion plans into European markets. These massive integrated manufacturers (GSCLSI targets a 60 GW capacity by this year) will not mind taking a few losses if required to force capacity closures in regions where local manufacturers simply donot have the same financial strength to hold out in the bruising price war. Expect the situation to get a lot more hairy for European and other manufacturers before any solution is found, or as many would prefer, market equilibrium with some non-Chinese survivors.