SunPower - research-doc.credit-suisse.com

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

12 February 2018 Americas/United States

Equity Research Alternative Energy

SunPower (SPWR) Rating NEUTRAL [V] Price (09-Feb-18, US$) 6.85 Target price (US$) 7.20 52-week price range (US$) 11.39 - 6.04 Market cap(US$ m) 956 Target price is for 12 months.

[V] = Stock Considered Volatile (see Disclosure Appendix)

Research Analysts

Michael Weinstein, ERP

212 325 0897

[email protected]

Maheep Mandloi

212 325 2345

[email protected]

Khanh Nguyen, CFA

212 538 3524

[email protected]

Aric Li

212 325 2679

[email protected]

INITIATION

Hurdles to Jump; Initiating at Neutral

■ We initiate coverage of SunPower (SPWR) with a Neutral rating and $7.20

target price. Management's focus on its residential and commercial

segments as well as a less capital-intensive manufacturing and sales

strategy make sense in the long term, especially as the company competes

with low-cost Asian solar modules. However, the import tariffs on US

shipments have put a dent in the plans, and SPWR faces near-term

refinancing ($300m convertible debt due June 2018).

■ Manufacturing Strategy Takes Advantage of Oversupply: SunPower has

augmented its proprietary high-efficiency solar module technology with its

patented P-Series that takes advantage of cell/module oversupply in the

value chain, achieving scale (>5 GW in few years) at lower capex.

■ Come for Modules, Stay for Everything Else: With the pivot to higher

ASP/GM% segments (residential and commercial), SunPower also benefits

from offering in-house micro-inverters and ancillary solar components in an

engineered package. A growing storage adoption in the market could further

position it as the system integrator of choice for dealers and contractors.

■ Neutral on Near-Term Uncertainty: Impact of tariffs is uncertain, and key

question remains how much of the 30% tariff on modules in the US could be

passed down to customers. Management is trying to seek an exemption

given its differentiated high-efficiency product, but we would remain on the

sidelines until uncertainty settles. Catalysts: Monetize non-core assets

(8point3 sale close in summer 2018), refinance $300m convert due June 1.

■ Valuation: We arrive at our $7.20 TP based on a 10x forward multiple on our

2019 EBITDA estimate, less net debt, discounted back at 10% and adding

value from 8point3 sale. Note the potential for 62.5% upside (+$4.50/sh) if

SPWR gets tariff exemption in the US. Risks: US trade uncertainty, cost

targets, net metering and renewable policies, and oversupply in value chain.

Share price performance

On 09-Feb-2018 the S&P 500 INDEX closed at 2568.72

Daily Feb09, 2017 - Feb09, 2018, 02/09/17 = US$6.97

Quarterly EPS Q1 Q2 Q3 Q4 2016A -0.30 -0.22 0.68 -0.64 2017E -0.36 -0.35 0.21 0.08 2018E -0.03 -0.03 -0.01 -0.07

Financial and valuation metrics

Year 12/16A 12/17E 12/18E 12/19E EPS (Excl. ESO) (US$) -0.48 -0.43 -0.14 0.06 EPS (CS adj., ) -0.48 -0.43 -0.14 0.06 Prev. EPS (CS adj., US$) P/E (CS adj.) (x) -14.4 -16.0 -47.5 115.9 P/E rel. (CS adj., %) -59.7 -73.6 -253.5 682.4 Revenue (US$ m) 2,702.9 2,008.5 2,846.0 3,035.3 EBITDA (US$ m) 163.6 166.9 206.3 230.3 Net Debt (US$ m) 1,177 1,410 1,263 1,285 OCFPS (US$) -2.36 -1.29 0.97 1.00 P/OCF (x) -2.9 -5.3 7.1 6.8

Number of shares (m) 139.57 Price/Sales (x) 0.45 BV/share (Next Qtr., US$) 6.3 P/BVPS (x) 1.5 Net debt (Next Qtr., US$ m) 1,409.7 Dividend (current, US$) - Dividend yield (%) - Source: Company data, Thomson Reuters, Credit Suisse estimates

12 February 2018

SunPower (SPWR) 2

SunPower (SPWR)

Price (09 Feb 2018): US$6.85; Rating: NEUTRAL [V]; Target Price: US$7.20; Analyst: Michael Weinstein

Income Statement 12/16A 12/17E 12/18E 12/19E

Revenue (US$ m) 2,702.9 2,008.5 2,846.0 3,035.3 Sales 2,702.9 2,008.5 2,846.0 3,035.3 EBITDA 163.6 166.9 206.3 230.3 Operating profit (151.3) (88.2) (16.1) 20.6 Recurring profit (151.4) (177.3) (88.2) (55.1)

Cash Flow 12/16A 12/17E 12/18E 12/19E

Cash flow from operations (314) (180) 137 144 CAPEX (187) (113) (100) (80) Free cashflow to the firm (501) (292) 37 64 Cash flow from investments (377) (266) 10 (166) Net share issue(/repurchase) 0 0 0 0 Dividends paid 0 0 0 0 Issuance (retirement) of debt 982 355 (77) 60 Other (837) (144) 77 (60) Cashflow from financing activities 145 212 0 (0) Effect of exchange rates 1 1 0 0 Changes in Net Cash/Debt (545) (233) 147 (22) Net debt at end 1,177 1,410 1,263 1,285

Balance Sheet ($US) 12/16A 12/17E 12/18E 12/19E

Assets Other current assets 834 594 594 594 Total current assets 1,915 1,537 1,453 1,548 Total assets 4,567 4,381 4,115 4,219 Liabilities Short-term debt 0 0 0 0 Total current liabilities 1,090 1,189 1,037 1,089 Long-term debt 1,565 1,440 1,363 1,423 Total liabilities 3,376 3,497 3,268 3,380 Shareholder equity 1,008 633 596 587 Total liabilities and equity 4,567 4,381 4,115 4,219 Net debt 1,177 1,410 1,263 1,285

Per share 12/16A 12/17E 12/18E 12/19E

No. of shares (wtd avg) 133 139 141 143 CS adj. EPS (0.48) (0.43) (0.14) 0.06 Prev. EPS (US$) Dividend (US$) 0.00 0.00 0.00 0.00 Free cash flow per share (3.77) (2.11) 0.26 0.44

Earnings 12/16A 12/17E 12/18E 12/19E

Sales growth (%) 3.5 (25.7) 41.7 6.7 EBIT growth (%) (162.6) 41.7 81.7 227.6 Net profit growth (%) (118.7) 5.8 65.8 141.6 EPS growth (%) (122.1) 10.0 66.4 141.0 EBIT margin (%) (5.6) (4.4) (0.6) 0.7

Valuation 12/16A 12/17E 12/18E 12/19E

EV/Sales (x) 0.79 1.18 0.78 0.74 EV/EBIT (x) (14.1) (26.8) (137.6) 108.9 P/E (x) (14.4) (16.0) (47.5) 115.9

Quarterly EPS Q1 Q2 Q3 Q4 2016A -0.30 -0.22 0.68 -0.64 2017E -0.36 -0.35 0.21 0.08 2018E -0.03 -0.03 -0.01 -0.07

Company Background

SunPower is a US based high-efficiency crystalline silicon photovoltaics (PV) module manufacturer and project developer.

Blue/Grey Sky Scenario

Our Blue Sky Scenario (US$) 11.70

Under a Blue sky scenario we assume the company succeeds in getting an exemption under US tariffs. Our blue sky value is driven by 10x multiple on 2019 blue sky EBITDA, adjusted for net debt entering 2019, discounted at 10% and adding SunPower's ownership in the 8point3 YieldCo.

Our Grey Sky Scenario (US$) 2.70

Under a grey sky scenario we assume that SunPower doesn't gets any exemption under the US tariff, and has to absorb the incremental tariffs. Our blue sky value is driven by 10x multiple on 2019 grey sky EBITDA, adjusted for net debt entering 2019, discounted at 10% and adding SunPower's ownership in the 8point3 YieldCo.

Share price performance

On 09-Feb-2018 the S&P 500 INDEX closed at 2568.72

Daily Feb09, 2017 - Feb09, 2018, 02/09/17 = US$6.97

Source: Company data, Thomson Reuters, Credit Suisse estimates

12 February 2018

SunPower (SPWR) 3

Table of Contents

Key Charts 4

Executive Summary 5

Capital-Light Expansion Strategy—Maintains Efficiency/Cost Competitiveness ..... 5

Strategic Shift—Focus on DG Business .................................................................. 6

Knight in French Armor—Strategic Relationship with Majority Holder Total ............ 7

US Import Tariffs—There Is Still Hope ..................................................................... 7

Stressed Balance Sheet—$300m Due June ............................................................ 8

Catalysts ................................................................................................................... 9

Solar Market Overview 10

Solar Demand—A Dip in 2018 Before Recovery in 2019 ...................................... 10

US Solar Demand................................................................................................... 13

Solar Supply—Easing Up in 2018 .......................................................................... 17

Company Overview 19

Cash Flow Focus—Simplify Business and Grow DG ............................................. 21

Drivers and Financials 23

Financial Models..................................................................................................... 27

Key Debates and Catalysts 29

P-Series—Taking Advantage of China Oversupply ............................................... 29

Competition with Low-Cost c-Si Industry ............................................................... 30

Knight in French Armor .......................................................................................... 32

US Import Duty Priced In—Upside to Exemption ................................................... 33

8point3 Sale ............................................................................................................ 35

Valuation 36

Investment Risks 38

Historical Valuation Multiples and Comps 39

Management, Compensation, & Governance 42

12 February 2018

SunPower (SPWR) 4

Key Charts

Figure 1: Increasing DG Shipments Figure 2: GM% Are Higher in DG Business

Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates.

Figure 3: P-Series Increases Project Value by $0.03-

0.04/W, or 10% of Module Price in Asia

Figure 4: While P-Series Takes Advantage of Solar

Oversupply


Figure 5: Upside from US Tariff Appeal Figure 6: $300m Convert Due in 2018


341 292 321 480 520 600

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Equity value $/sh Tariff pass through ASP

$ 7.2 - 10.0% 20.0% 30.0% 40.0% 50.0%

Tariff/w in yr 1 $ - $ 11.7 $ 11.7 $ 11.7 $ 11.7 $ 11.7 $ 11.7 Blue sky

$ 0.05 $ 9.1 $ 9.4 $ 9.7 $ 9.9 $ 10.2 $ 10.4

$ 0.10 $ 4.5 $ 5.3 $ 6.0 $ 6.7 $ 7.4 $ 8.1

Grey sky $ 0.12 $ 2.7 $ 3.6 $ 4.5 $ 5.4 $ 6.3 $ 7.2 Base case

$ 0.15 $ (0.0) $ 1.1 $ 2.3 $ 3.5 $ 4.7 $ 5.8

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Convert, owned by TOTAL Convert - others Non-recourse and other debt

12 February 2018

SunPower (SPWR) 5

Executive Summary We initiate coverage of SunPower (SPWR) with a Neutral rating and $7.20 target price.

US-based SPWR manufacturers its high-efficiency solar modules primarily in the

Philippines, Malaysia, and Mexico and sells modules, system components, and complete

solar systems to residential, commercial, and utility-scale solar customers globally.

SunPower is further integrated downstream, as it sells modules, components, and

engineered solutions through dealer network and hence captures a higher value compared

to generic module manufacturers. SunPower's differentiated high-efficiency technology

and less capital-intensive expansion strategy is clouded by near-term challenges, such as

import tariffs on solar modules sold in the US and the refinancing of $300m convertible debt.

Capital-Light Expansion Strategy—Maintains

Efficiency/Cost Competitiveness

SunPower's X-Series is still among the world's highest-efficiency products well suited for

tight spaces, especially residential and commercial applications. However, the company is

expanding its P-Series capacity, which competes with regular c-Si modules produced by

the rest of the supply chain. X-Series production stands at 1.1 GW today, and P-Series

was guided at 600 MW exiting 2017. The company's JV in China plans to build a 5-GW

production capacity for P-Series.

P-Series is made using off-the-shelf solar cells available at lower prices in an oversupplied

market, while capex for building P-Series manufacturing capacity (<$0.05/W) is a fraction

of the capex in the solar value chain ($0.25-0.35/W wafer-to-module capex). Management

expects P-Series to command a ~$0.10/W price premium, and it costs significantly less

when ramped up, resulting in reasonable margins. Customers benefit from a higher

efficiency (7% above conventional), lower balance of system (BOS) costs, improved

performance (5-6% higher energy yield), and lower module degradation. P-Series will

predominantly be used for utility-scale installations (power plant division) and commercial

installations, but we would not be surprised to see it compete with mono/multi silicon

modules in cost-sensitive residential applications as well.

Figure 7: Converting Regular c-Si Cells to P-Series

Figure 8: P-Series Produces 5-6% More Yield and

$0.03-0.04/W in Incremental NPV

Source: Company data. Source: Company data.

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12 February 2018

SunPower (SPWR) 6

Figure 9: Growing Oversupply in Solar Value Chain

Figure 10: Lower Utilization Rates Will Pressure

Cell/Wafer Prices (Input Cost for SunPower)


Strategic Shift—Focus on DG Business

Growing DG: SunPower is growing its distributed generation (DG) business in residential

and commercial segments, as the traditional power plant business is increasingly less

profitable due to intense competition. We forecast residential+commercial revenue share

increases from 46% average share in 2013-2016 to 77% by 2020, while we forecast DG

shipments grow from 48% in 2015-2017 to 64% by 2020. DG sales command a higher

average selling price (ASP) on $/W basis due to smaller system sizes and higher cost of

components for a rooftop application. Gross margins for DG systems are also higher, as

the segments are less competitive compared to utility-scale projects. We estimate

residential/commercial gross margins at 20% /15% in coming years (before import tariffs)

vs 10% for utility-scale systems.

Figure 11: Growing Share of Residential and

Commercial Shipments… Figure 12: …Which Command a Higher GM%


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12 February 2018

SunPower (SPWR) 7

Growing Module+ Business: Equinox for residential markets and Helix for commercial

markets are complete solutions that offer more than just modules. Modules now become

the star attraction and help the company upsell an engineered plug-and-play system

developed in-house. The integrated product helps lower installation costs for customers

due to hassle-free and faster installations. SunPower is in a unique position to offer such a

solution compared to peers, given its presence in DG markets and strong dealer network

based sales strategy globally.

Knight in French Armor—Strategic Relationship with

Majority Holder Total

Total owns a majority ownership in SunPower (59% equity and 49% debt). Total has not

indicated whether it wants to acquire rest of the stake, but we believe that any decision to

do so would depend on SunPower's ability to maintain profitability and potential synergies

from having an integrated solar+storage offering. Nevertheless, we do see near-term

opportunities for SunPower to grow market reach using Total's business network.

SunPower will supply ~50 MW/yr to Total for solar installations at gas stations, while the

two have collaborated together to develop and install solar projects in South Africa, Japan,

and France.

SunPower could also potentially benefit from a common renewable+battery platform as, in

the last two years, Total has acquired a Lithium-ion battery manufacturer, a small wind

turbine manufacturer, solar project developer, and energy efficiency company and has

also started its downstream solar project development business.

US Import Tariffs—There Is Still Hope

SunPower's modules shipped into the US are subject to the import tariff levied by

President Trump in January 2018 because the company manufactures cells and modules

in Philippines, Malaysia, and Mexico. Note that US import tariffs do not exempt any major

solar manufacturing country or company, except for non c-Si thin-film modules. SunPower

has announced that it would appeal against the ruling and seek exemption since its

higher-efficiency modules are different compared to c-Si modules manufactured by the

rest of the industry and since it is a US-headquartered company with majority of R&D

taking place in the country. We see ~$4.50/sh upside potential to our target price if

SunPower receives an exemption under the import tariffs, or if the US government

withdraws the tariffs altogether due to oppositions from WTO and member countries.

Figure 13: $4.50/Sh Upside to Our TP If SunPower Receives Tariff Exemption

Source: Credit Suisse estimates.


$ 7.2 - 10.0% 20.0% 30.0% 40.0% 50.0%


$ 0.05 $ 9.1 $ 9.4 $ 9.7 $ 9.9 $ 10.2 $ 10.4

$ 0.10 $ 4.5 $ 5.3 $ 6.0 $ 6.7 $ 7.4 $ 8.1


$ 0.15 $ (0.0) $ 1.1 $ 2.3 $ 3.5 $ 4.7 $ 5.8

12 February 2018

SunPower (SPWR) 8

Stressed Balance Sheet—$300m Due June

SunPower has a total debt of ~$1.77B (net debt $1.39B) as of 3Q17, which includes

$1.125B convertible debt, and the balance is project debt and debt associated with

residential leases. The $300m convertible debt due June 2018 is trading at par ($97.59),

while the longer-dated converts are trading at a discount ($400m due 2021 at $74.50,

$425m due 2023 at $82.31).

Non-core Monetization to Help: Selling solar power plants under construction could help

raise $552m ($3.83/sh proceeds), assuming a 10% gross margin on book value of assets.

More near term though, 8point3 sale could help raise ~$357m ($2.48/sh) at the acquisition

price offered by Capital Dynamics. 8point3 management expects the sale to close before

August 2018 and is awaiting independent shareholder approval and regulatory clearance.

Figure 14: Debt Schedule—$300m Convert Due in 2018

Source: Company Data.

Figure 15: SPWR Is More Levered Compared to Solar Peers

Source: Company data, Credit Suisse estimates.

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Non-recourse - Residential Non-recourse - El Pelicano

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FSLR SEDG ENPH DQ LONGi JASO HQCL YGE SPWR JKS CSIQ

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12 February 2018

SunPower (SPWR) 9

Catalysts

■ US Tariff Case Resolution: SunPower is seeking exemption from US import tariffs.

We believe the White House could announce a decision on exempted

companies/countries in 1H18, but timing is uncertain, as the president is not bound

by any deadline. We expect up to $4.5/sh upside potential to our TP if SunPower

receives the exemption.

■ 8point3 Sale Close—By August 2018: Capital Dynamics announced plan to

acquire 8point3 for an equity value of $977m ($12.35/sh) on February 5, 2018.

SPWR owns 36.5% equity in the YieldCo, FSLR owns 28%, and the balance is

owned by independent shareholders. SPWR's ownership is worth $357m (or

$2.48/sh) to SPWR shareholders (reflected in our valuation). Both the sponsors had

announced plans to exit the JV in 2017. 8point3 management expects the deal to

close by May-August 2018 after getting approval from the majority of independent

shareholders and necessary regulatory approvals.

■ Convertible Debt—June 1, 2018: $300m convertible debt matures on June 1,

2018. Total owns two-thirds of the debt and could be likely called upon to refinance.

Total had backstopped a $100m revolver in 3Q17.

■ Non-Core Monetization—Through 2018: Monetizing residential lease business -

Securitizing solar leases booked, 412-MW as of 3Q17, at average proceeds of

~$1.36/W, in-line with recent issuances, could help raise ~$500m ($3.47/sh

proceeds). Selling solar power plants under construction could help raise $552m

($3.83/sh proceeds), assuming a 10% gross margin on book value of assets.

■ India Protectionist Trade Case—4Q18: India proposed preliminary tariffs on solar

imports of up to 70%. A final decision will still take six to nine months and involves

another round of public hearing before going to the government for the final

approval. Any tariffs would jeopardize the Indian government’s goal to achieve its

100 GW target by 2022 and it even announced plans to auction 74 GW solar over

the next 27 months. Rising pollution in its major cities is also prompting the

government to install cheaper, carbon-free, and faster-to-market technologies. The

proposed tariff exempts SunPower's manufacturing capacity located in the

Philippines and Mexico.

12 February 2018

SunPower (SPWR) 10

Solar Market Overview Solar demand increased at a 24% CAGR from 2010 to 2016, while module costs declined

>76% and solar levelized cost of energy (LCOE) declined 60% from $100/MWh to

~$40/MWh during the same period. We forecast solar module demand grows to 116GW

by 2020, at a CAGR of 6% in 2017-2020, driven by policy support and continued decline in

solar energy prices.

On the supply side, polysilicon and solar wafers were in short supply in 2017 leading to

higher raw material costs for crystalline-silicon (c-Si) manufacturers. We tabulate more

capacity will come online across the value chain in 2018 and 2019, easing supply.

Solar Demand—A Dip in 2018 Before Recovery in

2019

We forecast solar model demand was 97 GW in 2017, up 22 GW y/y vs 75 GW in 2016,

due to stronger-than-expected demand in China (50 GW in 2017 vs 30 GW in 2016) and a

demand rush in the US ahead of a decision on import tariffs (incremental 4.9 GW modules

imported for 2018 demand).

We forecast solar module demand in 2018 declines to 92 GW, down ~5 GW or 5% y/y,

partially due to a decline in solar demand in China (down 5 GW y/y to 45 GW) but also

because of 4.4 GW of modules added to inventory in the US at 2018 prices. The decline in

the China and US markets is offset to an extent by growing solar demand in India (10 GW

vs 7 GW in 2017) and other emerging markets (Middle East and Latin America).

In the long term, we forecast global solar demand accelerates as declining solar costs and

cheaper storage increasingly replace conventional generation sources. Note that solar

generation represents less than 3% of global electricity generation today. We forecast

demand grows at a 6% CAGR from 2017 to 2020.

Figure 16: Global Solar Module Demand Grows at a 6% CAGR from 2016 to 2020


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12 February 2018

SunPower (SPWR) 11

Global Demand Drivers

■ Policy Support: Solar demand is supported by governments through various policy

measures due to inherent environment benefits, no fuel or commodity risks,

attractive economics, and ease of deployment. Countries support via strong long-

term targets (India – 100 GW by 2022, China – 230 GW by 2020), upfront

incentives (tax credits in the US market), production incentives (feed-in-tariff in

China, Japan), etc.

■ Falling Costs for Solar Equipment: Solar module prices have declined

significantly in 2011-12 (down 36%), and then in from 4Q15 to 1Q17 (down 38%)

due to lower raw material and processing costs for c-Si modules. We expect module

prices will decline ~10%/yr going forward as crystalline silicon manufacturers switch

to higher-efficiency technologies that consume less polysilicon and also reduce

processing costs.

Figure 17: Spot Solar Module Price $/Watt Declines

Source: PVInsight, PV-Energy Trend, Credit Suisse estimates.

■ Declining LCOE for Solar Electricity: Including tax credits, our estimate (based

on SEIA/GTM cost data) for levelized cost of energy (LCOE) from utility solar has

declined 73% from $125-170/MWh in 2010 to only $34-47/MWh in 2016 and

forecast to go down to $25-35/MWh by 2020 (before the impact of possible tariffs).

Without investment tax credits, we estimate residential solar LCOE would be

$40/MWh higher.

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US utility PPA -~$200/MWh

PPA ~$100/MWh

PPA ~$60/MWh PPA

~$40/MWh PPA ~$30/MWh

12 February 2018

SunPower (SPWR) 12

Figure 18: Solar LCOE Has Declined Below

$40/MWh in the US

Figure 19: PPAs Have Declined Across Major

Markets


■ Solar TAM—131-280 GW/Yr Unsubsidized: We calculate annual solar TAM of

131 GW assuming no growth in global electricity demand and that 25% of new

demand is met with solar (and 25% wind). Assuming 3% y/y growth in demand (in-

line with 1995-2016 CAGR), we calculate solar TAM of ~280 GW/yr in 2020. For

comparison, as per IEA, wind and solar capacity additions in 2016 accounted for

44% of global electricity capacity additions.

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UnsubsidizedGermany PPAs

12 February 2018

SunPower (SPWR) 13

US Solar Demand

2017 Demand: We forecast 2017 US solar module demand of 13.6 GW, which includes

9.3 GW of solar installations in the year and 4.4 GW of module demand pull-in for 2018

installations, as developers rushed to build inventory ahead of President Trump's decision

on the solar import tariffs. Installation demand in 2017 is further divided into 5.2 GW of

utility-scale demand (EIA data), 2.2 GW of residential demand (CS est), and 1.8 GW of

commercial solar (15% growth y/y).

A strong demand rush in 2016 was driven by a previously scheduled tax credit step-down.

The US legislature did extend the tax credits through 2021 in late December 2015, but

was too late to postpone most of the scheduled utility-scale solar deployments.

Figure 20: US Solar Demand Forecast

Source: GTM/SEIA, Company data, Credit Suisse estimates.

2018 Demand: We forecast solar installation demand will increase to 11.9 GW in 2018.

We forecast residential demand will increase from 2.2 GW to 2.4 GW after a dip in 2017

and that commercial demand grows due to favorable economics vs 2H17. Utility-scale

demand will increase given prior RFPs. However, module demand declines to 7.5 GW

(from 13.6 GW in 2017) due to ~4.4 GW of modules added to inventory in 2017.

Long-Term Growth Attractive: We forecast demand increases to 16 GW by 2020 driven

by cheaper solar PPAs, price declines that offset import tariffs, growing corporate and

customer interest, state-level renewable portfolio standards, and a demand rush in

2020/21 ahead of the decline in the federal tax credit to 10% after 2021.

Long-Term US Solar Demand Drivers:

■ Federal Investment Tax Credit (ITC)—Available Through 2021: New solar PV

and thermal plants are eligible to receive a 30% ITC on fair market value if the

plants are under construction before the end of 2019, after which the ITC tapers off

for new starts to 26% in 2020 and 22% in 2021. In 2022, the ITC expires for

residential systems and declines to 10% for commercial and utility-scale systems.

All utility-scale plants not placed in service prior to January 1, 2024, receive a 10%

ITC regardless of the date the construction was commenced. Unlike wind under the

PTC, the IRS has not yet indicated a safe-harbor rule for the ITC. The tax credits

receive bipartisan support in Congress and are unlikely to be pulled or tampered

with; however, further extensions are less likely given the declining cost of solar

systems and lower LCOE.

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Utility Residential Commercial Inventory

Demand pull in from 2018 to 2017 due to

201 trade case

12 February 2018

SunPower (SPWR) 14

Figure 21: US Federal Tax Credit for Renewables

Source: Government data.

■ Growing Corporate Interest: Coupled with the tax credits, lower solar system and

wind turbine costs imply that the levelized cost of energy generated from solar and

wind projects is lower than most of the other technologies globally as well as in the

US, barring US natural gas in certain cases. NEE's internal analysis shows that

declining costs have been the driver for 93% of wind projects developed owing to

favorable economics in 2015-16 versus 26% prior to 2010.

Figure 22: US Renewable Demand

Drivers for Unregulated Utility

Figure 23:Corporate Renewable

Procurement Is Rising


■ State RPS Acts as a Demand Backstop: State Renewable Portfolio Standards

(RPS) and renewable credit trading programs continue to be increased about as

fast as states meet their existing requirements. We forecast that US RPS will drive

127 GW of solar+wind demand from 2017 to 2030, assuming each of the

technologies meet half of the incremental renewable generation required under RPS.

■ Markets Beyond 2021 and ITC: Looking beyond 2021, we expect US renewable

demand will grow even without tax credits for wind or solar projects partially owing

to RPS demand as aforementioned but also as continued decline in wind turbine

and solar system prices will more than compensate for the decline in subsidies. We

expect wind and solar LCOE to decline to $20-40/MWh without any subsidies and

in-line with, if not better than, current solar and wind LCOE with tax credits.

2016 2017 2018 2019 2020 2021 2022 2023

Solar Investment Tax Credit (ITC), %

% of investment 30% 30% 30% 30% 26% 22% 10% 10%

Wind Production Tax Credit (PTC), $/MWh

If construction begins in…

2016 (100% PTC) $ 23.0 $ 23.0 $ 23.0 $ 23.0 $ 23.0

2017 (80% PTC) $ 19.2 $ 19.2 $ 19.2 $ 19.2 $ 19.2

2018 (60% PTC) $ 14.4 $ 14.4 $ 14.4 $ 14.4 $ 14.4

2019 (40% PTC) $ 9.6 $ 9.6 $ 9.6 $ 9.6 $ 9.6

2020 $ - $ - $ - $ -

2021 $ - $ - $ -

*PTC is subject to annual inflation adjustment

Tax credit by COD yearCurrent law - no change under

Tax reform

12 February 2018

SunPower (SPWR) 15

Figure 24: LCOE (¢/kWh) of Wind and Solar vs Conventional Fuel Generation,

Post-2020, Excludes Tax Credits


China—The (Solar) Elephant in the Room

■ Higher-than-Expected Demand in 2017: China installed >50 GW of solar in 2017,

representing more than 50% of global solar demand, an increase of 66% y/y

primarily due to (1) demand rush ahead of feed-in-tariff (FiT) cuts starting July 2017;

(2) lucrative feed-in-tariffs in 2H17 yielding >12% unlevered IRR for utility-scale

projects and >17% for distributed generation projects, (3) strong policy support for

provincial level quota, government programs like poverty-alleviation, and high

efficiency module auctions under Top Runner program, and (4) and government

push to increase distributed generation installations.

■ China Solar Demand Will Remain Elevated at Current Levels 2018-2020: The

Chinese government announced further FiT cuts in 2018, but the declining cost of

solar systems implies that new FiT can still yield 15% unlevered IRR for DG projects

and 11% for utility-scale projects. We forecast solar demand will remain elevated at

45 GW/yr from 2018 to 2020 in the country due to continued support from the

government for cleaner, cheaper, and fast to market energy technologies. The

installation run rate implied the country would surpass the cumulative target of 230

GW by 2020. Our demand forecast implies China will account for 44% of global

solar demand in 2018-2020.

■ However, Demand Still Dependent on Subsidies: China solar demand is

dependent on government energy subsidies that pay developers 37-90% above the

wholesale electricity tariffs. The only exception being 8-10 GW of annual solar

demand auctioned through a Top Runner program at rates closer to wholesale

tariffs. These subsidies are passed down to industrial electricity customers in the

form of an electricity surcharge of RMB 0.019/kWh. Despite the energy surcharge,

the country reported a RMB 50 billion ($7.8B) shortfall in subsidies that has led to

subsidy payment delays. A two-year delay in subsidy payments can lower project

unlevered IRRs by 5-6%. This shortfall will only grow as China doubles its solar

installed capacity (cumulative installations) from 2017 to 2020. Moody's forecasts a

RMB 200 billion ($30.2B) subsidy shortfall by 2020. The government plans to bridge

the subsidy gap by enforcing a national renewable energy certificate market by

imposing renewable quotas on coal-fired power plants in 2018 and by creating a

nation-wide carbon emission trading market in 2018. A $10/MT of hypothetical

carbon price could force coal power producers to pay $0.01/kWh, or 15% of

wholesale electricity tariffs in China.

12 February 2018

SunPower (SPWR) 16

■ In comparison, solar PPAs in other markets such as India, Middle East, Latin

America, and Europe are lower than conventional technologies, lower than

wholesale rates in most cases, and are largely unsubsidized (barring favorable

policy support).

Figure 25: China Solar FiT Cuts

Source: NDRC.

Figure 26: China Solar Demand

Remains Elevated in 2018–2020

Figure 27: India Solar Demand—37%

CAGR 2017–2020


India Will Likely Outpace US Solar Demand by 2020

We forecast India installed ~7GW of solar projects, mostly at utility-scale level, vs 4.5GW

in 2016. The growth is driven by new utility-scale project auctions in the country under the

government's National Solar Mission to achieve 100 GW solar PV by 2022. Central and

state governments have shown interest in solar auctions since solar PPAs have achieved

costs below $40/MWh, cheaper than conventional energy sources in the country. The

government plans to auction 14 GW solar projects in 1Q18 and additional 30 GW in

FY19 (April 2018 to March 2019) and 30 GW in FY20 (April 2019 to March 2020). As a

result, we forecast solar installations will grow to 18 GW by 2020 at a CAGR of 41% vs

2017 levels.

FiT Rates, RMB/kWh

2014 to 1H16 2H16 to 1H17 2H17 to 1H18 2H18

RMB/kWh RMB/kWh % chg RMB/kWh % chg RMB/kWh % chg

Ground-mount FiT

Region I 0.90 0.80 (11.1)% 0.65 (18.8)% 0.55 (15.4)%

Region II 0.95 0.88 (7.4)% 0.75 (14.8)% 0.65 (13.3)%

Region III 1.00 0.98 (2.0)% 0.85 (13.3)% 0.75 (11.8)%

Distributed solar 2014 to 1H16 2H16 to 1H17 2H17 Jan 2018

DG subsidy 0.42 0.42 - 0.42 - 0.37 (11.9)%

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12 February 2018

SunPower (SPWR) 17

Solar Supply—Easing Up in 2018

The global solar supply chain has suffered from oversupply in the past few years, which

resulted in sharp module price decline in 2016 (down 35% through the year). Demand

surge in 2017 provided the much needed relief in the sector, as module prices declined

only 13% through the year.

■ 2017 Was Undersupplied: We also compare annual changes in demand vs

increases in poly, wafer, and cell capacities based on announced planned

expansions. Demand grew >20 GW in 2017, but capacity additions were limited to

10-15 GW across the value chain, which led to supply tightness across the value

chain. The supply tightness affected polysilicon prices the most (up 15% in 2017)

because of scheduled maintenance in 3Q17 in China for major suppliers, a

protectionist trade policy in China that charges up to 50% import duty on polysilicon

imported by the US, and expansion delays in China due to strict environmental

compliance requirements. Wafer prices also increased in the year due to higher

polysilicon prices and a tight Tier-1 supply.

■ Supply Eases in 2018: Based on our bottom-up solar supply model, capacity

additions in 2018 vs a decline in demand will result in lower capacity utilization

across the supply chain and result in lower prices. While we forecast demand

declines by ~6.4-GW y/y in 2018, poly/wafer/cell capacity increases by

28/15.6/8.8 GW.

■ …But Timing of Capacity Additions Will Keep Poly Prices Stable in 1H18: New

polysilicon capacity is likely to come in service toward the end of 2018. Strong

demand in 1H18 ahead of China FiT cut deadline on June 30, 2018, could squeeze

supply in 1H18 and keep polysilicon prices elevated. Wafer prices could also be

under pressure due to quarterly supply shortages and as manufacturers swap out

multi-si capacity for mono-si capacity.

■ Expect Module Price Declines in 2018-19: We estimate module prices will decline

10% y/y on average due to lower demand in 2018, growing oversupply, and

declining FiTs in China. Based on current capacity announcements and demand

expectations of 116 GW in 2020, we believe 2020 could also be oversupplied

leading to lower module prices.

Figure 28: Solar Supply Demand Summary


Solar Supply/Demand Summary 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Demand, MW 21,107 26,900 29,291 36,417 45,138 52,656 75,000 97,034 91,654 103,248 116,231

Demand (ex thin film), MW 19,673 24,920 27,700 34,789 43,263 49,991 71,903 94,834 88,754 98,248 110,531

Total poly capacity, MT 206,390 288,143 320,560 333,260 374,710 413,410 446,410 485,260 575,260 625,260 625,260

(-) semi demand (from msi data, assuming 3gm/sq ini) 28,110 27,129 27,093 27,201 30,291 31,302 32,214 33,825 35,516 37,292 39,156

Total poly capacity available for solar, MT 178,280 261,014 293,467 306,059 344,419 382,108 414,196 451,435 539,744 587,968 586,104

Blended poly usage, grams/watt 7.0 5.9 5.5 5.4 5.15 4.90 4.62 4.17 3.98 3.81 3.65

Total solar poly capacity (ex semi, ex thin film), MW 25,325 44,090 52,687 56,158 66,892 77,909 89,621 108,200 135,522 154,234 160,599

(+) Thin Film supply (FSLR), MW 1,434 1,980 1,591 1,628 1,875 2,665 3,097 2,200 2,900 5,000 5,700

Total solar capacity (poly + thin film), MWs 26,759 46,070 54,278 57,786 68,767 80,574 92,719 110,400 138,422 159,234 166,299

Total wafer capacity (ex thin film), MW 32,013 45,535 51,174 58,211 64,982 72,183 86,753 104,689 119,603 132,603 151,103

Total cell capacity (ex thin film), MW 26,764 57,628 62,996 64,083 70,556 80,312 96,070 109,983 118,083 118,483 118,483

Average Capacity Utilization (ex-thin film)

Polysilicon 71.8% 57.2% 63.9% 70.3% 69.0% 85.8% 95.9% 72.8% 67.8% 70.2%

Wafer 64.3% 57.3% 63.6% 70.2% 72.9% 90.5% 99.1% 79.1% 77.9% 77.9%

Cell 59.1% 45.9% 54.8% 64.3% 66.3% 81.5% 92.0% 77.8% 83.1% 93.3%

12 February 2018

SunPower (SPWR) 18

Figure 29: Demand vs c-Si Cell and Wafer Capacity Figure 30: Utilization Falls Below 2016 Levels


What Could Surprise Our Thesis?

■ US—Tariffs/Tax-Reform Impact Harsher Than Expected: We forecast a limited

impact to our US demand estimates due to the 30% import tariffs, as the impact is

minimal on residential- and commercial-scale installations and major utility

developers have already contracted supplies. However, demand could decline if the

tariff impact is harsher than assumed. Tax equity constraints due to the BEAT

provision in the tax reform could also result in lower demand at the tail end of small-

scale developers.

■ China—Government Stops FiT Support: Solar demand in China can fall if the

government pulls the plug on feed-in-tariffs. FiTs are 37-67% higher than wholesale

tariffs and 2x low-cost subsidy-free solar PPAs, even when compared with markets

such India that have a higher cost of capital.

■ India—Protectionist Policy: A 70% import tariff under a current proposal would

jeopardize the Indian government’s goal to support solar installations. If implemented,

a tariff would result in higher module prices and lower demand in India.

■ Emerging Markets: Higher demand due to demand elasticity in emerging markets

such as Middle East, Latin America, Europe, and Australia.

■ New Capacity Build: Poly, wafer and cell capacity expansions announced by

manufacturers

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12 February 2018

SunPower (SPWR) 19

Company Overview SunPower (SPWR) is a vertically integrated global manufacturer and developer of solar

projects that was founded in 1985. The company develops, manufactures, installs, and

sells solar systems (designed to provide electricity for ~25 years) to residential-,

commercial-, and utility-scale power plants customers. In addition, SPWR offers project

development; sales; engineering, procurement, and construction (EPC); and operations

and maintenance (O&M) services for its installations. It also leases solar systems to

residential customers and sells inverters manufactured by third parties.

SPWR is a subsidiary of French oil and gas company, Total Energies (TOT), which

currently owns a 59% majority interest (including warrants).

SPWR is known for its high-efficiency polysilicon modules, with efficiency measured as

amount of sunlight converted by the module into electricity. Its modules hold efficiencies of

>22% compared with an industry average of ~17%. Highly efficient modules are better

suited for space-constrained spaces such as rooftops in the residential and commercial

rooftop markets.

Figure 31: SunPower Company Timeline

Source: Company data, Credit Suisse estimates

Figure 32: SunPower Competes in Crystalline Silicon Production Process

Source: Credit Suisse.

Powered NASA Pathfinder aircraft with high efficiency solar cells Fab 2 came online in the Phillippines

Initial funding from VC and an R&D contract from EPRI/DOE Acquired PowerLight, a solar systems provider

SunPower officially incorporated SPWR IPO Began production of record breaking high efficiency (22.4%) solar cell

1985 1990 1997 2001 2002 2003 2004 2005 2007 2008 2010

Cypress Semiconductor invested $8M Announced record breaking mono-silicon cell efficiency (23.4%)

Tom Werner joined as CEO Announced record cell efficiency record (24.2%)

First manufacturing facility (Fab 1) came online in the Phillippines JV with AU Optronics for Fab 3 in Malaysia

First utility-scale power plant came online in Bavaria

Partnered with Sunverge to offer solar+storage Announced restructuring program

Acquired SolarBridge Technologies Acquired AUO's stake in 800MW Fab 3 JV in Malaysia

Announced 160MW manufacturing facility in South Africa Won 500MW solar PPA in Mexico

Acquired Greenbotics, a robotics solar panel cleaning products and services company Announced SunPower Equinox system

2011 2012 2013 2014 2015 2016

Total SA acquired a 60% majority interest in SPWR Formed 8point3 joint yieldco with FSLR

Launched C7 Tracker achieveing record LCOE for utility-scale power plants Began construction on 102MW Henrietta solar plant in CA

Acquired French solar provider, Tenesol SA Signed 20-year PPA with NV Energy for 100MW solar plant

Acquired 1.5GW US solar power plant development pipeline from Infigen Energy

12 February 2018

SunPower (SPWR) 20

Figure 33: Research Cell Efficiency—Multi-Si 22.3%, Mono-Si 25.8%

Source: NREL (https://www.nrel.gov/pv/assets/images/efficiency-chart.png).

Technology Summary

SunPower manufacturers two types of solar modules:

Interdigitated Back Contact (IBC): This type essentially deploys busbars on solar cells

behind the call instead of competitors putting busbars on the sun-facing side. This results in a

higher cell and module level efficiency compared with peers. The company's latest X-Series

module using this technology has already achieved 25% average cell conversion efficiency in

production, one of the highest in the world, and better than previous generation E-Series cells,

which had a 20%+ efficiency. SunPower produces the X-Series at its 350 MW production line

in the Philippines (fab 4, ramping up) and 800 MW Malaysia line (fab 3, upgrading).

P-Series: SunPower acquired P-Series technology through its acquisition of Cogenra in

August 2015. P-series cells are essentially overlapping strips of conventional c-si cells.

Busbars, the wires on cells that carry electricity generated, are located between the overlapped

areas in P-series, which helps in maximizing surface area generating electricity on each

module. The company claims that P-Series module efficiency is 7% higher and energy

production is 17% higher. The company is producing P-Series in Mexico (400 MW capacity).

SolarBridge: SunPower bought micro-inverter manufacturer SolarBridge in November 2014.

Micro-inverters are small inverters that are directly attached on the back of each module in the

factory and avoid the need to install a separate inverter on premises. Apart from reducing

installation costs of an extra inverter, the micro-inverters also help improve system

performance, as poor performance in one module (due to shading or any defect) doesn't affect

the performance of other modules (which generally happens in traditional central inverters).

Enphase is the main micro-inverter competitor, which costs ~$0.35-0.40/W.

Subsidiaries—8Point3 YieldCo (CAFD)

In June 2015, FSLR and SunPower (SPWR) formed their joint yieldco, 8point3 Energy

Partners (CAFD). CAFD was formed to own, operate, and acquire solar energy assets.

FSLR and SPWR both contribute solar projects (dropdown) into CAFD in exchange for

cash as well as equity stakes.

The YieldCo was put on sale in mid-2017 after both the sponsors decided to exit the JV.

Capital Dynamics has offered to acquire the YieldCo for cash, and the deal is likely to be

closed by August 2018.

12 February 2018

SunPower (SPWR) 21

Cash Flow Focus—Simplify Business and Grow DG

■ Restructuring: SunPower laid outs its restructuring plan in December 2016 to

prioritize near-term cash flow over earnings. Core tenants of the restructuring plan

included (1) a shutdown of the 700MW Fab 2 facility, (2) the elimination of certain

senior management positions, (3) a 2017 OpEx target of $340M vs then

expectations of $350M and our $404M 2016 est, and (4) inventory liquidation and

working capital management to support operating cash flow generation.

■ DG Focus: SunPower's power plant business had historically benefited from legacy

solar projects that delivered >20% gross margin. However, the power plant business

has turned less profitable due to strong competition for large-scale projects globally.

As a result, the company has decided to invest in residential- and commercial-scale

solar projects. We forecast that the share of residential and commercial deployments

will grow from <50% in 2017 to >60% by 2020. We also estimate residential projects

will earn a 20% gross margin, commercial – 15%, and power plant – 10%.

Figure 34: Shift to Residential and Commercial

Deployments…

Figure 35: …Driven by Higher Margins in Distributed

Generation


■ Monetizing Non-Core Assets: Management has expressed its desire to exit or

monetize all non-core operations under the restructuring plan.

■ 8point3 Sale – $357m: The company, along with JV partner FSLR, had announced

in 2017 plans to sell their ownership in the YieldCo. Capital Dynamics announced

on February 5, 2018, it would acquire 8point3 in cash for equity value of $977m, or

$12.35/sh. SunPower's equity ownership (36.5%) is worth $357m. Apart from

proceeds from the ownership sale in the YieldCo, SunPower also benefits by

freeing up ~400 MW solar projects from 8point3's ROFO list and could potentially

monetize them ahead of completion.

■ Lease Asset Financing – >$500m: The company could potentially securitize the

rest of the leasing assets through a solar ABS. The market for solar ABS has

increased >3x in 2017 and represents just 0.34% of the total US ABS market.

Securitizing the rest of the solar leases booked, 412-MW, at average proceeds of

~$1.36/W, in-line with recent issuances, could help raise ~$500m (adjusted for

$54m lease asset financing in 3Q17).

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25.0%

30.0%

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E


12 February 2018

SunPower (SPWR) 22

Figure 36: Solar ABS Issuances Jumped 3x in 2017


$ 54

$ 272 $ 235

$ 326

$ 1,427

2013 2014 2015 2016 2017

Dividend

Sunnova

Mosaic

Spruce

Sunrun

SolarCity

0.02%

0.07% 0.07%

0.10%

0.34%

2013 2014 2015 2016 2017

Solar ABS issuanceas % of total US ABS

$ -

$ 200

$ 400

$ 600

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$ 1,000

$ 1,200

$ 1,400

$ 1,600

2013 2014 2015 2016 2017

Leases

Loans

12 February 2018

SunPower (SPWR) 23

Drivers and Financials Business Segments

SunPower reports business segments based on the type of end customer – Residential,

Commercial, and Power Plants. The company sells solar modules and kits that include

mounting frames, trackers for commercial, microinverters for residential business, and

complete solutions through authorized sales partners. The company's complete residential

solution is called Equinox, while its commercial solution is called Helix.

■ Power Plant: This segment includes solar modules and kits supplied to third-party

customers and also SunPower's in-house project development. The company’s

current power plant portfolio includes ~500 MW Mexico solar projects won

competitively in 2016. Gross margins have been declining in the business due to

growing competition for solar projects globally and a declining cost of solar modules

in the industry, which is pressuring prices. Management hopes to arrest the decline

in Power Plant gross margins by deploying a low-cost P-Series module that can

compete on cost with traditional crystalline silicon modules. We expect the company

will be able to maintain 10% gross margins going forward while system ASP

continues to decline ~10% per year.

Figure 37: SPWR Power Plant Business—Historical and Credit Suisse Estimates


■ Commercial Solar Projects: The commercial business is the fastest business

segment for SunPower. While commercial solar projects are sold globally, US

commercial solar market alone installed 1.6 GW in 2016 and we forecast 1.8 GW/yr

of installations in 2017 (up 15% y/y), growing to 3.3 GW/yr by 2020 (21% CAGR

2017-2020). In comparison, we expect SunPower's commercial deployment will

grow at a 32% CAGR from 347 MW in 2017 to 800 MW in 2020. Apart from a fast-

growing market, interest is also driven by SunPower's integrated product (Helix).

Helix is a complete commercial solar offering that combines SunPower's high-

efficiency solar modules with purpose-built mounting structures, wires, and

inverters. The complete solution makes SunPower a one-stop shop for any project

developer and reduces installation time. Historically commercial sola projects were

based on E-Series and X-Series modules, but we expect P-Series could be used for

non-rooftop applications where it competes with traditional c-Si modules. The

company had guided 2017 deployments to grow 15-20% y/y.

592

743 714 740 780 775

-

100

200

300

400

500

600

700

800

900

2015A 2016A 2017E 2018E 2019E 2020E

Power Plant Deployment, MW

25.3%

20.5%

16.6%

13.6%

5.4%

10.0% 10.0% 10.0%

0%

5%

10%

15%

20%

25%

30%

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E

Power Plant Non-GAAP Gross Margins

$ 3.41

$ 2.18 $ 1.90

$ 2.02

$ 1.16 $ 1.10 $ 1.00 $ 0.90

$ -

$ 0.50

$ 1.00

$ 1.50

$ 2.00

$ 2.50

$ 3.00

$ 3.50

$ 4.00

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E

Power Plant ASP, $/W

12 February 2018

SunPower (SPWR) 24

Figure 38: SPWR Commercial Business—Historical and Credit Suisse Estimates


■ Growing Residential Market: SunPower sells solar module and kits, which include

microinverters and mounting systems, to residential customers in major markets

such as the US, Europe, and Japan. The company's high-efficiency products are

suitable for residential roofs with limited surface areas. Unlike vertically integrated

US residential developers (such as RUN, VSLR, and SolarCity), SunPower relies on

a dealer network for customer acquisition and installation but provides solar system

kits and helps finance leases if needed. The flexible business model means that the

company could reach a wider network of customers through dealers and with

minimal upfront capital investment to set up a sales network. The US residential

market has been growing at a fast pace for SunPower, and the company is even

gaining module market share in California's residential market. Cash and loan sales

represented 63% of US residential shipments in 3Q17, while 37% were leased (vs

65%/35% in 2Q17 and 61%/29% in 1Q17). The company has also deployed 380

MW solar leases, primarily in the US. Attachment rates for SunPower's integrated

residential solar system offering (Equinox) was >80% in 1Q17, >85% in 2Q17, and

~90% of bookings in 3Q17. Higher Equinox attachment rates in the future could

present upside to our residential ASP assumptions. We forecast residential

deployments increase from 321 MW to 600 MW by 2020, gross margins of ~20%,

and ASPs decline from $2.95/W to $2.30/W in 2020.

Figure 39: SPWR Residential Business—Historical and Credit Suisse Estimates


■ Storage Attachment Rates Are Growing: SunPower has a $60m solar+storage

pipeline for next year, mostly for power plant projects. In addition, management

expects half of commercial projects will have storage in 2018, and attachment rates

are only growing, a trend confirmed by residential solar developer SunRun. We

expect a higher margin on storage adders, as solar+storage is still a niche market.

193 305 347

480

700 800

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100

200

300

400

500

600

700

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900

2015A 2016A 2017E 2018E 2019E 2020E

Commercial Deployment, MW

3.2%

13.1%

11.2%

7.8%

10.9%

14.0%15.0% 15.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E

Commercial Non-GAAP Gross Margins, %

$ 1.86

$ 2.09

$ 1.75

$ 2.18

$ 1.78 $ 1.70

$ 1.60 $ 1.50

$ 1.00

$ 1.20

$ 1.40

$ 1.60

$ 1.80

$ 2.00

$ 2.20

$ 2.40

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E

Commercial ASP, $/W

341 292 321

480 520 600

-

100

200

300

400

500

600

700

2015A 2016A 2017E 2018E 2019E 2020E

Residential Deployments, MW

18.1%

21.0%

23.3%

21.7%

19.5%20.0% 20.0% 20.0%

15%

16%

17%

18%

19%

20%

21%

22%

23%

24%

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E

Residential Non-GAAP Gross Margins

$ 1.82 $ 1.88

$ 2.24

$ 3.62

$ 2.95

$ 2.60 $ 2.40

$ 2.30

$ 1.00

$ 1.50

$ 2.00

$ 2.50

$ 3.00

$ 3.50

$ 4.00

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E

Residential ASP, $/W

12 February 2018

SunPower (SPWR) 25

■ Bookings: The company announced total solar bookings of ~500 MW in 2017 as of

3Q17, which includes 300 MW French solar tenders. The company's pipeline of

early-late stage commercial projects exceeds $2.5B.

Cash and Balance Sheet

The company has $1.125B of convertible debt on its balance sheet, while the rest of the

debt mainly pertains to long-term loans for residential leases ($353m) and credit facilities

for projects (Boulder I - $28m, El Pelicano - $177m). In addition, the company also

secured a $100m revolver with majority holder Total.

The $300m 2018 convertible debt is due on June 2018. A $24.95 conversion price implies

SunPower would have to pay note holders in cash. TOT owns $200m of the debt and

could likely participate in refinancing. Nevertheless, SunPower could refinance the $300m

convert with 8point3 sale proceeds ($357m, or $2.48/sh), potential future assets sales, or

lease asset securitization.

Management plans to exit 2017 with >$350m in cash.

Figure 40: Debt Schedule—$300m Convert Due in 2018


Above Market Polysilicon in Contracts

SunPower had entered into fixed-price polysilicon supply agreements for multiple years at

a time when polysilicon cost was >$100/kg. However, the cost of polysilicon has declined

significantly to ~$15-20/kg last year. Starting 1Q17, management has started excluding

the impact of higher-cost polysilicon from its non-GAAP segment gross margins. The

company still has purchase obligations worth $199.1m related to take-or-pay, non-

cancellable polysilicon contracts. The cost of above market polysilicon was $99m, or

$0.07/W of MWs produced in 2015, increasing to $148m, or $0.12/W of MWs produced in

2016. The cost includes polysilicon sale to third-party customers at a loss to improve

working capital and reduce inventory.

200 250

100

100

150 325

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

4Q17 2018 2019 2020 2021 >2021

Convert, owned by TOTAL Convert - others Non-recourse, other

Non-recourse - Residential Non-recourse - El Pelicano

12 February 2018

SunPower (SPWR) 26

Figure 41: Quarterly Cost of Above-Market Polysilicon


$15 $13 $14 $56 $13 $16 $27 $92 $30 $22 $33

$ 0.05 $ 0.04 $ 0.04

$ 0.16

$ 0.04 $ 0.04

$ 0.08

$ 0.32

$ 0.11

$ 0.08

$ 0.11

$ -

$ 0.05

$ 0.10

$ 0.15

$ 0.20

$ 0.25

$ 0.30

$ 0.35

$ -

$ 10

$ 20

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$ 50

$ 60

$ 70

$ 80

$ 90

$ 100

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17

Cost of above-market polysilicon, $m $/watt produced (RHS)

12 February 2018

SunPower (SPWR) 27

Financial Models

Figure 42: SPWR Earnings Model


Income Statement 2015A 2016A 1Q17A 2Q17A 3Q17A 4Q17E 2017E 2018E 2019E 2020ERevenues $ 2,613 $ 2,703 $ 429 $ 341 $ 534 $ 704 $ 2,009 $ 2,846 $ 3,035 $ 3,085

(-) COGS $ 1,987 $ 2,459 $ 402 $ 300 $ 465 $ 601 $ 1,768 $ 2,506 $ 2,647 $ 2,655

Gross Profits $ 625.3 $ 243.5 $ 27.9 $ 41.7 $ 68.2 $ 102.9 $ 240.6 $ 339.9 $ 388.6 $ 429.2

Gross Margin % 23.9% 9.0% 6.5% 12.2% 12.8% 14.6% 12.0% 11.9% 12.8% 13.9%

(-) R&D $ 87.4 $ 102.0 $ 19.0 $ 17.5 $ 19.0 $ 19.0 $ 74.6 $ 76.0 $ 80.0 $ 80.0

(-) SG&A (excl restructuring) $ 296.2 $ 292.8 $ 62.1 $ 61.9 $ 63.3 $ 67.0 $ 254.3 $ 280.0 $ 288.0 $ 300.0

Operating Expenses $ 383.6 $ 394.9 $ 81.1 $ 79.4 $ 82.3 $ 86.0 $ 328.9 $ 356.0 $ 368.0 $ 380.0

Operating Income $ 241.7 $ (151.3) $ (53.3) $ (37.7) $ (14.1) $ 16.8 $ (88.2) $ (16.1) $ 20.6 $ 49.2

Op Margin % 9.3% (5.6)% (12.4)% (11.1)% (2.6)% 2.4% (4.4)% (0.6)% 0.7% 1.6%

(+) Other Income (excluding non-cash interest expense)$ 21.8 $ (0.1) $ (13.8) $ (34.0) $ (21.2) $ (19.9) $ (89.0) $ (72.1) $ (75.6) $ (88.6)

Pretax Income $ 263.4 $ (151.4) $ (67.1) $ (71.8) $ (35.3) $ (3.1) $ (177.3) $ (88.2) $ (55.0) $ (39.4)

(-) Taxes on Earnings $ 47.7 $ 12.6 $ 1.5 $ 2.0 $ (24.9) $ (0.6) $ (22.0) $ (17.6) $ (11.0) $ (7.9)

tax rate % 18.1% (8.3)% (2.3)% (2.8)% 70.4% 20.0% 12.4% 20.0% 20.0% 20.0%

(+) minority / Equity income $ 9.6 $ 28.1 $ 1.1 $ 5.4 $ 15.3 $ 8.1 $ 29.9 $ 33.8 $ 35.7 $ 37.3

Net Income $ 225.3 $ (136.0) $ (67.5) $ (68.3) $ 4.9 $ 5.6 $ (125.4) $ (36.8) $ (8.4) $ 5.7

(+) Net loss attributable to NCI (attributable to installations on tax-equity deals)$ 112 $ 73 $ 17 $ 19 $ 25 $ 5 $ 66 $ 17 $ 17 $ 17

Net income attributable to stockholders $ 337.8 $ (63.2) $ (50.4) $ (49.3) $ 29.5 $ 10.6 $ (59.6) $ (19.8) $ 8.6 $ 22.7

Non-GAAP EPS $ 2.16 $ (0.48) $ (0.36) $ (0.35) $ 0.21 $ 0.08 $ (0.43) $ (0.14) $ 0.06 $ 0.16

Diluted Shares 156.7 132.7 138.9 139.4 139.5 140.0 138.9 141.4 143.3 145.2

EBITDA $ 556.5 $ 163.6 $ 8.6 $ 13.5 $ 67.3 $ 77.4 $ 166.8 $ 206.9 $ 230.5 $ 270.8

EBITDA guidance $185-$210m ($20)-($45)m($25)-$0m $0-$20m $75-$100m$165-$190m

Key Drivers

Deployments, MW 1,126 1,340 177 363 407 435 1,382 1,700 2,000 2,175

Sales, MW 968 1,299 230 226 379 410 1,245 1,723 1,955 2,070

Operating Cash Flow $ (726.2) $ (313.5) $ (126.9) $ (161.8) $ (26.6) $ 135.5 $ (179.8) $ 137.3 $ 143.8 $ 170.4

Capex $ 230.1 $ 187.1 $ 27.9 $ 17.2 $ 12.5 $ 55.0 $ 112.6 $ 100.0 $ 80.0 $ 80.0

FCF $ (956.3) $ (500.6) $ (154.8) $ (179.0) $ (39.1) $ 80.5 $ (292.4) $ 37.3 $ 63.8 $ 90.4

12 February 2018

SunPower (SPWR) 28

Figure 43: SPWR Balance Sheet & Cash Flow Statement


Balance Sheet 2015A 2016A 1Q17A 2Q17A 3Q17A 4Q17E 2017E 2018E 2019E 2020E

AssetsCash and cash equivalents $ 955 $ 425 $ 387 $ 327 $ 275 $ 346 $ 346 $ 415 $ 453 $ 613 Accounts receivable, net $ 190 $ 220 $ 168 $ 196 $ 186 $ 246 $ 246 $ 214 $ 245 $ 240 Inventory $ 382 $ 402 $ 428 $ 445 $ 408 $ 310 $ 310 $ 188 $ 214 $ 206

Total Current Assets $ 2,515 $ 1,915 $ 1,650 $ 1,664 $ 1,505 $ 1,537 $ 1,537 $ 1,453 $ 1,548 $ 1,695

Net PP&E $ 1,263 $ 1,648 $ 1,719 $ 1,727 $ 1,760 $ 1,801 $ 1,801 $ 1,619 $ 1,627 $ 1,642

Project Assets - net of current portion $ 5 $ 34 $ 35 $ 41 $ 42 $ 42 $ 42 $ 42 $ 42 $ 42

Intangible assets, net $ 120 $ 44 $ 41 $ 37 $ 34 $ 34 $ 34 $ 34 $ 34 $ 34

Total Assets $ 4,857 $ 4,567 $ 4,326 $ 4,357 $ 4,309 $ 4,381 $ 4,381 $ 4,115 $ 4,219 $ 4,380

Liabilities

Accounts payable $ 515 $ 540 $ 438 $ 426 $ 408 $ 528 $ 528 $ 375 $ 427 $ 412

Current portion long-term debt $ 21 $ 71 $ 80 $ 427 $ 357 $ 357 $ 357 $ 357 $ 357 $ 357

Total Current Liabilities $ 999 $ 1,090 $ 815 $ 1,149 $ 1,070 $ 1,189 $ 1,189 $ 1,037 $ 1,089 $ 1,074

Long-term debt $ 1,590 $ 1,565 $ 1,615 $ 1,366 $ 1,417 $ 1,440 $ 1,440 $ 1,363 $ 1,423 $ 1,595

Other long term liabilities $ 565 $ 721 $ 775 $ 786 $ 796 $ 796 $ 796 $ 796 $ 796 $ 796

Total Liabilities $ 3,279 $ 3,376 $ 3,287 $ 3,375 $ 3,355 $ 3,497 $ 3,497 $ 3,268 $ 3,380 $ 3,536

Total Shareholders Equity $ 1,578 $ 1,191 $ 1,039 $ 981 $ 954 $ 884 $ 884 $ 847 $ 838 $ 844

Total Liabilities & Equity $ 4,857 $ 4,567 $ 4,326 $ 4,357 $ 4,309 $ 4,381 $ 4,381 $ 4,115 $ 4,219 $ 4,380

Cash Flow Statement 2015A 2016A 1Q17A 2Q17A 3Q17A 4Q17E 2017E 2018E 2019E 2020E

Cash Flows from operating activities

Net income (loss) $ (299.4) $ (543.8) $ (151.6) $ (112.8) $ (78.9) $ 5.6 $ (337.7) $ (37.4) $ (8.5) $ 5.7

Depreciation $ 138.0 $ 174.2 $ 42.1 $ 45.3 $ 46.2 $ 47.5 $ 181.1 $ 172.2 $ 157.2 $ 167.3

Changes in operating assets and liabilities: $ (619.3) $ (179.3) $ (38.8) $ (118.6) $ (1.8) $ 157.4 $ (1.8) $ 1.8 $ (5.0) $ (2.6)

Net cash provided by (used in) operating activities$ (726.2) $ (313.5) $ (126.9) $ (161.8) $ (26.6) $ 135.5 $ (179.8) $ 136.6 $ 143.7 $ 170.4

Cash flows from investing activities:

Increase in restricted cash $ (23.7) $ (22.7) $ - $ - $ - $ - $ - $ - $ -

Purchase of property, plant and equipment $ (230.1) $ (187.1) $ (27.9) $ (17.2) $ (12.5) $ (55.0) $ (112.6) $ (100.0) $ (80.0) $ (80.0)

Other long-term assets

Net cash used in investing activities $ 109.4 $ (377.5) $ (60.8) $ (44.9) $ (71.9) $ (88.0) $ (265.6) $ 9.9 $ (165.9) $ (181.8)

Cash flows from financing activities:

Net cash provided by financing activities $ 620.0 $ 161.0 $ 135.1 $ 53.0 $ (7.9) $ 23.1 $ 203.2 $ (76.9) $ 60.1 $ 171.2 Effect of Exchange rate change on Cash $ (4.8) $ 0.7 $ 0.8 $ 0.4 $ 0.1 $ 1.3 $ - $ - $ -

Net increase (decrease) in cash and cash equivalents$ (2) $ (529) $ (52) $ (153) $ (106) $ 71 $ (241) $ 70 $ 38 $ 160

Cash and cash equivalents at beginning of period $ 956 $ 955 $ 514 $ 462 $ 309 $ 203 $ 514 $ 273 $ 343 $ 381

Cash and cash equivalents at end of period $ 954 $ 425 $ 462 $ 309 $ 203 $ 273 $ 273 $ 343 $ 381 $ 541

FCF $ (956.3) $ (500.6) $ (154.8) $ (179.0) $ (39.1) $ 80.5 $ (292.4) $ 36.6 $ 63.7 $ 90.4

12 February 2018

SunPower (SPWR) 29

Key Debates and Catalysts

P-Series—Taking Advantage of China Oversupply

■ Capital Light Expansion: P-Series equipment capex is <$0.05/W (per

management's December 2016 update call), which screens much lower than

$0.40/W for traditional mono/multi silicon wafer-module capex. SunPower is

building a 5 GW P-Series manufacturing capacity in China. A third of products are

destined for the US markets if no tariffs are imposed, a third for international

projects, and a third for China.

■ Technology Advantage: SunPower acquired P-Series technology through its

acquisition of Cogenra in August 2015. P-series cells are essentially overlapping

strips of conventional c-si cells. Busbars, the wires on cells that carry electricity

generated, are located between the overlapped areas in P-series, which helps in

maximizing surface area generating electricity on each module. The company claims

that P-Series module efficiency is 7% higher and energy production is 17% higher.

Figure 44: P-Series—Up to 17% Higher Energy Production over Life of Asset


Figure 45: Converting Regular c-Si Cells to P-Series

Figure 46: P-Series Produces 5-6% More Yield and

$0.03-0.04/W in Incremental NPV

Source: Company data. Source: Company data.

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12 February 2018

SunPower (SPWR) 30

■ Higher ASP Driven by Higher Energy Generation: Assuming a 15% energy

advantage, a P-Series ASP can command up to ~$0.05-0.10/W price premium

above high-efficiency silicon modules that trade at $0.40/W on the spot market. The

price premium due to the energy advantage alone implies a one- to two-year

payback period.

■ IP Protection: SunPower's has patent rights over the cell technology issued in

2014. A JV in China for P-Series production could force the company to share its IP

with Chinese manufacturers. Meanwhile, China-based Seraphim Energy also

manufactures a similar product called Seraphim Eclipse, which has overlapping

cells. The product was launched in 2016 and offers a 15% higher yield. Seraphim

also claims that its patent is pending approval.

Competition with Low-Cost c-Si Industry

■ Keeping with the Crystallines: SunPower's high-efficiency IBC modules compete

with a vast ecosystem of crystalline silicon (c-Si) module manufacturers.

SunPower's limited disclosure on module cost and pricing structure makes it difficult

to compare it with c-Si peers. However, SunPower's gross margins were in-line with

module manufactures, implying the company is facing the same margin pressures

due to declining prices and higher raw material costs (poly and wafer). SunPower's

gross margins were also affected by weaker performance by commercial and power

plant businesses.

Figure 47: Gross margin—SunPower and c-Si

Module Manufacturers Lag Upstream

Figure 48: EBITDA Margin—SunPower vs c-Si

Manufacturers


■ Mono Is the New Multi: SunPower's products are increasingly competing against

higher-efficiency mono c-Si modules, as most of the manufacturers are switching

from multi to mono and especially mono PERC technology. Mono-PERC module

conversion efficiencies are 200-300 bps above multi c-Si modules and cost the

same to manufacture, as higher production costs are offset by lower polysilicon

usage. Based on our supply demand, we tabulate that the mix of mono wafer

capacity is increasing from 21% in 2016 to 34% in 2017 to 45% in 2018.

■ Maintaining Efficiency Lead: Despite Mono-PERC's growing presence,

SunPower's products will still be able to maintain an efficiency lead. P-Series

technology will use the same mono-PERC cells and improve them for a higher

-10%

0%

10%

20%

30%

40%

50%

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

FSLR SPWR JKS JASO

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50%

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1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

FSLR SPWR JKS JASO

TSL LONGi DQ CSIQ

12 February 2018

SunPower (SPWR) 31

efficiency, while IBC technology modules (X-Series) are already at a higher module

efficiency, and management expects it will maintain the lead in modules based on

next-generation technologies.

Figure 49: SPWR IBC Modules—Industry-Leading Module Efficiency

Source: Company data, EnergySage.

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12 February 2018

SunPower (SPWR) 32

Knight in French Armor

Total owns a majority ownership in SunPower (equity and debt). Total hasn't indicated

whether it wants to acquire rest of the stake, but we believe that any decision to do so

would depend on SunPower's ability to maintain profitability and potential synergies from

having an integrated solar+storage offering. Nevertheless, we do see near-term

opportunities for SunPower to expand market reach using Total's business network.

■ Total as Majority Owner: Total acquired 60% ownership in SunPower in June

2011 for ~$1.4B ($23.25/sh then). Subsequently, in December 2011, Total

increased its holding to 66% by acquiring 18.6m shares at $8.80/sh. Total's

ownership in SunPower stands at 59% (including warrants). Total also owns

$550m, or 48.9%, of SunPower's convertible debt. As a result, the majority five of

nine directors on SunPower's board are from Total.

■ Total as a Customer: In 2016, SunPower announced an agreement with Total for

up to 200 MW spread over four years to deploy panels globally at Total properties.

The deal includes 150 MW to be installed over 5,000 gas service stations (~30kW

per gas station) and 50 MW on commercial properties. The deal run rate seems

small (50MW/yr), but we like the deal, as it marked the start of a formal solar

deployment relationship with majority owner Total. We see upside from the deal if

Total decided to deploy more solar on its gas stations and other properties. Total

had a network of 16,000 stations in over 66 countries (additional 330 MW

opportunity at 30kW per station) and gross acreage of 211m acres under its oil and

gas business.

■ More Solar Projects with Total: Since 2016, Total and SunPower have also

collaborated on building solar projects globally, including 75 MW in South Africa in

2016 and 27 MW in Japan in 2017. Total's solar development arm, Total Solar, and

SunPower have also won projects in French solar tenders.

■ Total as Backstop: SunPower announced in 2017 Total's intention to backstop

$100m of SunPower's revolving credit facility. Total continues to provide a reliable

liquidity backstop and may have to be called on again to address the 2018 converts.

Total owns two-thirds of the convertible debt, or $200m, of the total $300m. Total

also owns $250m of the $400m 2021 convertible debt and $100m of the $450m

2023 convert. Cumulatively, Total owns 48.9% of SunPower's convertible debt.

■ Total's Growing Renewable Ambitions Could Accelerate SunPower: Total

reorganized its renewable business under the Gas, Renewables & Power business

in 2016. Since then, the company has acquired a Lithium-ion battery manufacturer

(SAFT in 2016 for $1B), a stake in distributed wind turbine manufacturer (United

Wind in July 2016), a 23% interest in a solar project developer (EREN Renewable

Energy in September 2017 for $285m), and an energy efficiency company (Grenflex

in September 2017). Total also started its solar project development business, Total

Solar, in 2017.

12 February 2018

SunPower (SPWR) 33

US Import Duty Priced In—Upside to Exemption

■ Tariffs Penalize SunPower: SunPower and crystalline silicon cell and module

manufacturers would have to pay a 30% tariff on solar cells and modules imported

in the US starting February 7, 2018. The tariff would be in effect through February

2022 but declines to 25%/20%/15% in 2019/20/21, respectively, at every

anniversary. The tariff implies c-Si module prices would settle in at ~$0.45/W in the

US, or in-line with prices seen in 2H16.

■ Cell Quota Doesn't Benefit SunPower: President Trump has allowed 2.5 GW of

cells to be imported every year sans tariffs. However, SunPower doesn't benefit from

the quota as it doesn't manufacture solar modules in the US (except for a pilot line for

testing new technologies). We believe that building a new module assembly factory in

the US could be feasible only if they get access to tariff free cells under the 2.5 GW

quota. However, we calculate that 4+ GW of module capacity (old+new announced) is

already competing for the 2.5 GW quota, leaving little room for certainty for a new

manufacturer. In addition, the tariffs fade away after four years implying that a module

factory would have to economical compared to Asian peers in the future.

■ Base Case—$0.12/W Tariff in Year One: Since SunPower would have to import

modules from Mexico, Philippines, or Malaysia, the company would be liable to pay a

30% tariff in year one on the cost of modules. While we assume c-Si peers pay $0.10/W

in the first year, we estimate that SPWR likely pays a slightly higher tariff ($0.12/W)

because its higher-efficiency modules cost more than conventional modules. We

estimate that the tariff on SunPower's modules declines to $0.10/W in 2019 and

$0.07/W in 2020, driven by a 5% decline in tariffs every year and also lower module

costs. We assume the tariff impacts 70% of revenue and COGS, which is lower than

historical US share of revenues (76%-85% 2014-2016) as the company expands

international operations. Moreover, we assume that the company is able to pass 50% of

the tariffs to end customers as demand for its differentiated high efficiency products

remains high. The higher costs on US modules reduces 2018 EBITDA by $72m, or

$0.51/sh, and reduces 2019 EBITDA by $66m, or $0.46/sh. The tariffs reduce equity

value by $4.5/sh, assuming 10x multiple on 2019 EBITDA reduction of $66m and

discounting back at 10% (in-line with our valuation methodology).

■ Management Still Hopeful of Exemption: SunPower has argued to the

government that it should receive an exemption since (1) its high-efficiency modules

are unique in the industry and separate from rest of the industry that is dependent

primarily on lower efficiency multi-crystalline modules, (2) the company is US based

and the underlying IBC technology was developed in the US, and (3) its

manufacturing facilities in Mexico, the Philippines, and Malaysia have not received

the same subsidies or government support as Chinese manufacturers have.

■ International Projects & Business Not Affected by The Tariffs: SunPower is

building 516 MW of projects in Mexico (399 MW Ticul Solar, and 117 MW Guajiro Solar)

that will be completed in 2018, has a 200-MW E-Series supply agreement with Total

spread over four years (2017-2020), won 505 MW in France's CRE solar tenders that

would be built over the next two to three years, and has significant commercial and

utility-scale business in Japan, Europe, and other developed markets.

Links to our prior research reports on US Section 201 trade case and import tariffs on

solar cell and modules:

1/22/18: 30% Tariff - In line – No Surprises

11/1/17: USITC: A Weaker Tariff Saves Jobs

9/22/17: USITC Finds Injury, In line with Expectations

https://plus.credit-suisse.com/r/V7b0UJ2AF-Wu3r

https://plus.credit-suisse.com/r/V7aKX22AF-Yp3E

https://plus.credit-suisse.com/r/V7ZrID2AF-Wu3r

12 February 2018

SunPower (SPWR) 34

Figure 50: US Import Tariffs and Impact on c-Si Module Prices


Yr 1 Yr 2 Yr 3 Yr 4

2018 2019 2020 2021

President Trump's Final Decision - announed 1/22/18

Cell quota - MW 2,500 2,500 2,500 2,500

Cell import tariff above quota 30.0% 25.0% 20.0% 15.0%

Module import tariff 30.0% 25.0% 20.0% 15.0%

Imported module cost, $/W $ 0.45 $ 0.38 $ 0.34 $ 0.31

US made module ASP, below quota (using imported cell) $ 0.42 $ 0.38 $ 0.36 $ 0.34

US made module ASP, above quota (using imported cell) $ 0.48 $ 0.43 $ 0.40 $ 0.37

CS module cost assumptions

Global average module price, $/W $ 0.32 $ 0.28 $ 0.26 $ 0.24

Freight & warranty + transfer cost $ 0.03 $ 0.03 $ 0.03 $ 0.03

Global avg cell price, $/W $ 0.20 $ 0.18 $ 0.17 $ 0.16

Module conversion cost in Asia, $/W $ 0.12 $ 0.11 $ 0.10 $ 0.09

Extra manufacturing cost in the US, $/W $ 0.03 $ 0.03 $ 0.03 $ 0.03

Manufacturer gross margin 10.0% 10.0% 10.0% 10.0%

Cell tariff 30.0% 25.0% 20.0% 15.0%

Cost of US made module $ 0.48 $ 0.43 $ 0.40 $ 0.37

12 February 2018

SunPower (SPWR) 35

8point3 Sale

■ 8Point3 YieldCo to Be Acquired by Capital Dynamics: On Feb 5, 2018, 8point3

announced that Capital Dynamics would acquire the company for cash at $12.35/sh

(adjusted for dividend distributions until deal close), representing a 10.7% discount

to the prior close. The acquisition implies a lower-than-expected yield: an 11.5%

cash yield based on 2017 cash available for distribution (CAFD) and a 14.4x

multiple on 2017 EBITDA. Both the sponsors, FSLR and SPWR, will forego any

value associated with the IDRs. We calculate SPWR's 28.9m shares in 8point3 are

worth ~$357m, or ~$2.48/sh, for SPWR shareholders.

■ 8point3 Next Steps and Additional Acquisition Details: 8point3 management

expects the deal to close in FQ2 (ending May 2018) or FQ3 (ending August 2018),

and the final price paid would include dividends paid on a pro-rata basis until the

deal closes. The acquisition is predicated on majority approval of independent

Class A shareholders (not including sponsors) and regulatory approvals (FERc,

HSR, CFIUS). 8point3 will not solicit any other offers, likely since Capital Dynamics

was selected after a detailed review of >130 inbound inquiries.

■ Termination Fees: 8point3 is liable to pay a termination fee of $25m to Capital

Dynamics if the company selects an alternative offer, or liable to pay $8m expense

reimbursement if 8point3 fails to approve the deal by Aug 6, 2018 (extendable to

Nov 5, 2018) except for any regulatory delays. Capital Dynamics is liable to pay a

termination fee of $54m if it does not respond to a closing failure notice, or a $6m

expense reimbursement if the deal does not receive CFIUS approval.

Figure 51: CAFD's Sector High Dividend Yield Is Indicative of Limited Dropdown

Visibility Despite Guidance of 12% Dividend Growth

Source: Thomson Reuters, I/B/E/S.

■ 8Point3 YieldCo History: In June 2015, FSLR and SunPower (SPWR) formed

their joint yieldco, 8point3 Energy Partners (CAFD). CAFD was formed to own,

operate, and acquire solar energy assets. FSLR and SPWR contributed solar

projects (dropdown) into CAFD in exchange for cash as well as equity stakes. As of

4Q17, FSLR owned a 50% interest in the partnership and a 28% economic and

voting interest in the operating company (OpCo) entity, and SPWR owned a 50%

interest in the partnership and a 36.5% economic and voting interest in the OpCo

entity. CAFD’s CEO, Chuck Boynton, is the CFO at SPWR and CAFD’s CFO, Bryan

Schumaker, is the SVP and Chief Accounting Officer of FSLR.

0%

2%

4%

6%

8%

10%

12%

14%

Jul-1

4

Sep

-14

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-14

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Mar

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Jul-1

7

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-17

YieldCo dividend yield range Wt Avg NEP CAFD

12 February 2018

SunPower (SPWR) 36

Valuation Our target price of $7.20 is based on a 10x multiple to our 2019 adjusted EBITDA estimate

(excludes 8point3 distributions), net of debt, discounted back at 10%, and including

SPWR's share in 8point3. The multiple is in-line with its prior-year average since 2013

(8.7-12.4x average). The multiple represents a slight premium to FSLR's 9x, reflecting the

company's higher-margin sales opportunity in the growing residential and commercial

solar markets. The stock currently trades at 10.6x our 2019 adjusted EBITDA estimate.

Figure 52: Valuation Summary—Base Case


Figure 53: Valuation Bridge – Note TP $7.20/Sh Is Based on 10x Forward

Multiple on 2019 EBITDA


Base case valuation Per share

2019 adj EBITDA (ex 8point3 distributions) $ 195

Multiple 10.0x

EV on corp $ 1,948 $ 13.5

(-) net debt (starting 2019) $ (1,196) $ (8.3)

Equity value $ 752 $ 5.2

Discount rate 10.0%

(+) SPWR share in CAFD $ 357 $ 2.5

PV of equity value $ 1,041 $ 7.2

Diluted share count, m 144.0

Ownership in YieldCo

memo: 8point3 current price $ 12.29

8point3 current offer price (by Capital Dynamics) $ 12.35

+ Dividends accrued in Q1 (assuming Q2 close) $ 0.28

8point3 sale price end of Q1 $ 12.63

PV at 10% discount rate (for SPWR) $ 12.32

SPWR's current share ownership, m shares 28.9

8point3 sale proceeds for SPWR, $m $ 357

8point3 sale proceeds for SPWR, $/sh $ 2.48

$ 8.3

$ 4.8

$ 3.4

$ 2.4

$ 2.5

$ 7.2

$ 9.7

$ 4.5

$0

$5

$10

$15

$20

$25

Resi C&I Power Plant Net debt Tariffs

HoldCo DevCo value implied CAFD Less Equity value

12 February 2018

SunPower (SPWR) 37

Blue and Grey Sky Scenarios

Under a blue sky scenario, we assume the company is exempted from the US import

tariffs. We value blue sky 2019 EBITDA at a 10x forward multiple, net of debt, discounted

back at 10% and including SPWR's share in 8point3 at $2.50/sh.

Under a grey sky scenario, we assume the company is not exempted under the trade case

and absorbs 100% of the incremental costs because of pricing pressure from Asian

suppliers. We value grey sky 2019 EBITDA at a 10x forward multiple, net of debt,

discounted back at 10% and including SPWR's share in 8point3 at $2.50/sh.

Figure 54: Equity Value/Sh Sensitivity to US Import Tariff in Yr 1 (i.e., 2018) and

Relative Valuation Multiples



$ 7.2 - 10.0% 20.0% 30.0% 40.0% 50.0%


$ 0.05 $ 9.1 $ 9.4 $ 9.7 $ 9.9 $ 10.2 $ 10.4

$ 0.10 $ 4.5 $ 5.3 $ 6.0 $ 6.7 $ 7.4 $ 8.1


$ 0.15 $ (0.0) $ 1.1 $ 2.3 $ 3.5 $ 4.7 $ 5.8

12 February 2018

SunPower (SPWR) 38

Investment Risks

■ Tax Equity Supply Shortage Under BEAT Tax: Tax equity is an important

financing vehicle for solar projects in the US. Of a project's cost, 40-50% is financed

by tax equity investors in return for the 30% solar tax credit and annual cash

payments. The tax reform bill signed by President Trump in 2017 included a

provision called The Base Erosion Anti-Abuse Tax (BEAT) would set a 10%

minimum tax on adjustable income including cross-border exemptions, but exempts

only 80% of renewable tax credits in a year. Uncertainty around the eligibility to take

advantage of up to 20% of renewable tax credits could potentially squeeze tax

equity supply for solar projects and result in lower demand. Based on our channel

checks, we expect minimum impact to tax equity supply for solar and wind ITCs,

which don’t need extensive tax visibility beyond the first few years.

■ US Tariff Case Resolution: SunPower is seeking exemption from US import tariffs.

We believe the White House could announce a decision on exempted

companies/countries in 1H18, but timing is uncertain, as the president is not bound

by any deadline. We expect up to $4.5/sh potential upside potential to our TP if

SunPower receives the exemption. While our TP assumes a partial impact of the

tariffs, we expect up to $4.5/sh potential downside if the company can't pass down

tariffs to customers and has to absorb the impact.

■ Achieving Cost Reduction Targets: Delay in capacity expansion and associated

cost reduction measures could put the company in the penalty box and force it to

revalidate the value proposition of its technology. The stock current trades at 3x net

asset value of solar projects, adjusted for ownership in CAFD and net of debt,

implying the market assigns significant value to the module production and system

development business.

■ Polysilicon and c-Si Module Oversupply and Cost Declines: Solar module price

declines could potentially accelerate in late 2018 and 2019 due to capacity

additions across the supply chain. SunPower's P-Series technology is directly

dependent on upstream poly, wafer, and cell supply, as it plans to procure solar

cells made in China. Peers with higher upstream poly/wafer capacity have benefited

in 2H17 from higher demand in China/US and lower supply in China. However,

based on our supply/demand analysis, we believe SPWR stands to benefit from

growing oversupply in late 2018 through 2019.

■ Trade/Renewable Policy Changes: Positive or negative surprises in demand for

solar due to policy changes in major markets could also disrupt the supply/demand

balance and cause module prices to fall if demand declines and vice a versa.

12 February 2018

SunPower (SPWR) 39

Historical Valuation Multiples and Comps

Figure 55: SPWR Historical Relative Valuation Multiples


0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

EV/EBITDA (NTM)

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EV/Sales (NTM)

0.00x

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1.50x

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2.50x


Price/Sales (NTM)

12 February 2018

SunPower (SPWR) 40

Figure 56: Solar Value Chain Comps Sheet

Source: Company data, Credit Suisse estimates. Thomson Reuters, I/B/E/S consensus

Price Currency Mkt. Cap Consensus dividend Yield Consensus EV/EBITDA CS Rating/TP

2/9/2018 (USD$m) 2017 2018 2019 2017 2018 2019 Rating, Target, Analyst

YieldCos

Atlantica Yield (AY) 19.69 USD 1,973 5.7% 7.7% 8.8% 9.6x 9.1x 8.3x

8point3 Energy Partners (CAFD) 12.33 USD 975 8.6% 9.1% 9.0% 14.1x 14.5x 14.6x

Hannon Armstrong (HASI) 20.5 USD 1,088 6.5% 7.0% 7.6% 23.9x 19.8x 17.5x

NextEra Energy Partners (NEP) 38.71 USD 6,067 3.9% 4.5% 5.2% 13.8x 10.8x 9.3x O 46.00 Michael Weinstein, Maheep Mandloi

NRG Yield (NYLD) 16.8 USD 3,090 6.6% 7.5% 8.3% 9.3x 8.8x 8.1x

Pattern Energy (PEGI) 18.41 USD 1,802 9.1% 9.4% 9.7% 11.3x 9.2x 8.4x

Terraform Power (TERP) 11.04 USD 1,636 3.2% 7.0% 7.4% 10.7x 9.9x 8.1x

Mean 6.2% 7.5% 8.0% 13.2x 11.7x 10.6x

Median 6.5% 7.5% 8.3% 11.3x 9.9x 8.4x

Solar Comps Price Currency Mkt. Cap Consensus P/E Consensus EV/EBITDA CS Rating/TP

2/9/2018 (USD$m) 2017 2018 2019 2017 2018 2019 Rating, Target, Analyst

Downstream solar project developers

Azure Power (AZRE) 16.525 USD 429 41.0x 13.4x 11.7x 7.8x 5.7x O 22.00 Maheep Mandloi, Michael Weinstein

Singyes Solar (0750.HK) 2.92 HKD 311 6.7x 5.9x 5.2x 0.8x 0.8x 0.9x

First Solar (FSLR) 60.69 USD 6,338 24.4x 40.5x 18.2x 14.3x 12.5x 7.3x U 55.00 Michael Weinstein, Maheep Mandloi

SunPower (SPWR) 6.79 USD 948 22.1x 16.1x 11.8x 9.6x N 7.20 Michael Weinstein, Maheep Mandloi

Sunrun (RUN) 5.33 USD 569 4.8x 3.4x 2.9x 14.4x O 15.00 Michael Weinstein, Maheep Mandloi

Vivint Solar (VSLR) 2.9 USD 333

Mean 12.0x 22.7x 12.4x 10.7x 8.2x 7.6x

Median 6.7x 23.2x 13.4x 13.0x 9.8x 7.3x

Upstream solar cell, module manufactures 15.5x 17.6x 11.6x 6.1x 7.2x 6.1x

Comtec Solar (0712.HK) 0.26 HKD 70 9.0x 5.7x 1.2x 0.8x 0.6x

Canadian Solar (CSIQ) 15.15 USD 876 10.3x 8.5x 9.6x 9.7x 10.2x 10.1x

Jinko Solar (JKS) 17.26 USD 562 23.1x 11.5x 7.7x 16.9x 14.8x 12.8x N 22.00 Maheep Mandloi, Michael Weinstein

LONGi (601012.SS) 31.05 CNY 9,793 20.1x 16.1x 13.2x 2.2x 1.7x 1.4x N 37.00 Gary Zhou, Dave Dai

JA Solar (JASO.OQ) 7.59 USD 361 10.7x 14.8x 13.0x 4.6x 3.9x 3.7x N 7.55 Maheep Mandloi, Michael Weinstein

ReneSola (SOL) 2.41 USD 92 nm 30.1x 8.0x 23.3x 12.9x

Gintech Energy Corp (3514.TW) 15.05 TWD 267 nm nm nm 0.5x 0.4x 0.3x

Motech Industries (6244.TWO) 20.1 TWD 369 nm nm nm 1.8x

Hanwha Q Cells (HQCL.OQ) 7.38 USD 617 13.4x 33.5x 23.8x 8.0x 7.8x 7.1x

Mean 15.5x 17.6x 11.6x 6.1x 7.2x 6.1x

Median 13.4x 14.8x 9.6x 4.6x 3.9x 5.4x

Upstream solar polysilicon manufactures 18.2x 13.1x 11.3x 3.1x 2.1x 1.4x

OCI (010060.KS) 153500 KRW 3,338 16.9x 14.7x 14.9x

REC Silicon (REC.OL) 1.066 NOK 315 nm nm nm 14.0x 6.9x 2.4x

SAS (5483.TWO) 89 TWD 1,791 19.3x 11.5x

Shin-etsu Chemical (4063.T) 11220 JPY 44,586 22.2x 18.5x 16.6x 0.1x 0.1x 0.1x

Sumco (3436.T) 2669 JPY 7,199 30.6x 14.3x 11.5x 0.1x 0.1x 0.1x O 4,000.0 Yoshiyasu Takemura

Tokuyama Corporation (4043.T) 2928 JPY 1,883 12.3x 9.2x 8.1x 0.0x 0.0x 0.0x

Wacker Chemie (WCHG.DE) 139.05 EUR 8,931 28.7x 19.9x 16.7x N 112.0 Mathew Hampshire-Waugh

GCL poly (3800.HK) 1.16 HKD 2,757 9.0x 8.1x 7.5x 0.8x 0.7x 0.7x O 1.66 Gary Zhou, Dave Dai

Daqo (DQ) 49.02 USD 527 5.9x 6.8x 5.3x 4.7x 5.7x 5.4x

Tongwei (600438.SS) 8.85 CNY 5,435 18.8x 14.7x 10.2x 1.8x 1.4x 1.1x

Mean 18.2x 13.1x 11.3x 3.1x 2.1x 1.4x

Median 18.8x 14.3x 10.9x 0.8x 0.7x 0.7x

Solar inverter manufacturers 25.3x 40.3x 21.1x 1.5x 11.4x 8.5x

AEIS (AEIS.OQ) 62.4 USD 2,475 13.3x 12.0x 11.5x

Enphase (ENPH) 2.28 USD 195 nm 81.4x 17.9x (8.6)x 13.1x 8.3x

SolarEdge (SEDG.OQ) 32.25 USD 1,387 14.4x 15.2x 16.2x 11.6x 9.6x 8.8x

SMA Solar (S92G.DE) 42.4 EUR 1,864 48.3x 52.4x 38.8x

Mean 25.3x 40.3x 21.1x 1.5x 11.4x 8.5x

Median 14.4x 33.8x 17.0x 1.5x 11.4x 8.5x

Solar equipment manufacturers 13.7x 17.7x 13.2x 63.1x 12.3x 10.0x

Applied Materials (AMAT.OQ) 45.75 USD 48,199 13.7x 11.2x 10.2x 10.6x 8.9x 8.5x O 72.00 Farhan Ahmad

Meyer Burger Technologies (MBTN.S)1.6 CHF 1,098 nm 24.2x 16.2x 115.6x 15.7x 11.6x N 1.60 Patrick Laager

PV Crystalox Solar AG (PVCS.L) 20.3 GBp 45

Mean 13.7x 17.7x 13.2x 63.1x 12.3x 10.0x

Median 13.7x 17.7x 13.2x 63.1x 12.3x 10.0x

12 February 2018

SunPower (SPWR) 41

Figure 57: Solar Manufacturers Stock Performance Since 4/1/17

SPWR's challenge against FSLR (US tariff beneficiary) and LONGi (low-cost mono silicon upstream)

Source: Thomson Reuters.

50

100

150

200

250

300

Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18

CSIQ JKS JASO HQCL LONGi GCL FSLR SPWR RUN

12 February 2018

SunPower (SPWR) 42

Management, Compensation, & Governance

■ Thomas H. Werner, President, CEO, and Chairman: Mr. Werner has served as

chairman since May 2011 and as CEO since June 2003. He previously served as

the CEO of Silicon Light Machines (optical solutions company), a subsidiary of

Cypress Semiconductor Corporation, from 2001 to 2003 and as a VP and GM at

3Com Corp. (network solutions company). He holds a B.S. in industrial engineering

from University of Wisconsin – Madison, a B.S. electrical engineering from

Marquette University, and an M.B.A. from George Washington University.

■ Charles D. Boynton, EVP and CFO: Mr. Boynton has served as EVP and CFO

since March 2012 and as the VP of finance and corporate development from June

2010 to March 2012. He previously served as CFO for ServiceSource (IT

management company) from April 2008 to June 2010 and as CFO for Intelliden

(software solutions company) from March 2004 to April 2008. He holds a B.S. in

business from Indiana University and an M.B.A. from Northwestern University.

■ Dr. Bill Mulligan, EVP of Global Operations: Dr. Mulligan has served as EVP of

global operations since February 2017 and, prior to that, as VP of upstream

strategy since November 2014. He has worked at SunPower for more than 12 years

since 1998 as VP of R&D and briefly left the company in 2010 to serve as CEO and

president of SolarBridge, a micro-inverter manufacturer, which was acquired by

SunPower in 2014.

■ Douglas J. Richards, EVP Administration: Mr. Richards has served as EVP of

administration since November 2011, as EVP of HR and corporate services from

April 2010 to October 2011, and as VP of HR and corporate services from

September 2007 to March 2010. He previously served as VP of HR and

administration for SelectBuild (construction services company) from 2006 to 2007

and as SVP of HR and administration for BlueArc (network storage system

manufacturer). He holds a B.A. in public administration from California State

University – Chico.

Figure 58: Management Compensation Summary

Source: Company filings (2017 Proxy).

Name and Position Year Salary Bonus Stock Awards Non-Equity

Incentive Plan

Compensation

All Other

Compensation

Total

Thomas H. Werner 2016 $347,959 - $6,773,488 - $24,436 $7,145,883

President, CEO, Chairman 2015 $600,000 - $6,751,062 $1,265,722 $28,181 $8,644,965

2014 $600,000 - $2,985,000 $1,375,948 $25,666 $4,986,614

Charles D. Boynton 2016 $465,077 - $949,592 $90,097 $30,949 $1,535,715

EVP, CFO 2015 $443,077 - $1,125,309 $435,231 $30,949 $2,034,566

2014 $425,000 - $1,014,900 $445,951 $29,139 $1,914,990

Douglas J. Richards 2016 $370,000 - $656,400 $63,714 $22,088 $1,112,202

EVP, Administration 2015 $367,231 - $835,605 $328,522 $28,032 $1,559,390

2014 $357,269 - $799,980 $335,520 $26,583 $1,519,352

12 February 2018

SunPower (SPWR) 43

Corporate Governance and Compensation Structure

We note that only three of nine directors are independent. Given the 2011 acquisition of

SunPower by French multinational integrated oil and gas conglomerate Total S.A., the

majority five of nine directors are from Total.

Figure 59: Board Composition

Source: Company Filings (2017 Proxy).

Name Independent? Experience Audit Compensation Finance Nominating and

Corpoate

Governance

Tenure

Thomas H. Werner No Chairman & CEO, SunPower 2003

François Badoual No President & CEO, Total New Energies Venture x 2017

Antoine Larenaudie No Treasurer, Total Group x 2017

Catherine A. Lesjak Yes EVP & CFO, HP Inc. x x 2013

Helle Kristoffersen No SVP Strategy & Corporate Affairs, Total S.A. x x 2016

Thomas R. McDaniel Yes Former: EVP, CFO & Treasurer, Edison International C x C x 2009

Ladislas Paszkiewicz No SVP M&A, Total S.A. x 2016

Julien Pouget No SVP Renewables, Total S.A. x 2017

Pat Wood III Yes Principal of Wood3 Resources x C C 2005

12 February 2018

SunPower (SPWR) 44

Companies Mentioned (Price as of 09-Feb-2018) 8Point3 Energy Partners (CAFD.OQ, $12.35) Advanced Energy Industries Inc. (AEIS.OQ, $64.5) Applied Materials Inc. (AMAT.OQ, $48.08) Atlantica Yield (AY.OQ, $19.75) Azure Power Global Limited (AZRE.N, $16.53) Canadian Solar (CSIQ.OQ, $14.89) China Singyes Solar Technologies Holdings Limited (0750.HK, HK$2.92) Comtec Solar (0712.HK, HK$0.26) Daqo New Energy (DQ.N, $49.73) Enphase Energy (ENPH.OQ, $2.29) First Solar (FSLR.OQ, $61.22) GCL-Poly Energy Holdings Ltd (3800.HK, HK$1.16) Gintech Energy Corporation (3514.TW, NT$15.05) Hannon Armstrong (HASI.N, $20.7) Hanwha Q Cells (HQCL.OQ, $7.06) JA Solar Holdings (JASO.OQ, $7.45) Jinko Solar (JKS.N, $17.18) LONGi Green Energy Technology (601012.SS, Rmb31.05) Meyer Burger (MBTN.S, SFr1.6) Motech Industries (6244.TWO, NT$20.1) NRG Yield (NYLDa.N, $16.64) NRG Yield (NYLD.N, $16.85) NextEra Energy Partners (NEP.N, $37.76) OCI Company Ltd (010060.KS, W153,500) PV Crystalox (PVCS.L, 20.3p) Pattern Energy (PEGI.OQ, $18.74) ReneSola Ltd (SOL.N, $2.34) Renewable Energy (REC.OL, Nkr1.066) SUMCO (3436.T, ¥2,669) Sino-American Silicon Products (5483.TWO, NT$89.0) Solaredge Tech (SEDG.OQ, $32.2) Solargiga Energy (0757.HK, HK$0.222) SunPower (SPWR.OQ, $6.85, NEUTRAL[V], TP $7.2) Sunrun (RUN.OQ, $5.37) TerraForm Power (TERP.OQ, $11.18) Tesla Motors Inc. (TSLA.OQ, $310.42) Tokuyama (4043.T, ¥2,928) Tongwei (600438.SS, Rmb8.85) Total (TOTF.PA, €44.7) Wacker Chemie (WCHG.DE, €139.05) Yingli Green Energy Holding (YGE.N, $1.49)

Disclosure Appendix

Analyst Certification Michael Weinstein, ERP, and Maheep Mandloi each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for SunPower (SPWR.OQ)

SPWR.OQ Closing Price Target Price

Date (US$) (US$) Rating

24-Feb-15 32.80 35.00 O

28-Jul-15 25.66 32.00

10-Aug-16 10.31 12.00 N

10-Nov-16 6.32 9.00

14-Nov-16 6.88 9.00 *

16-Feb-17 6.76 8.00

19-Jun-17 7.79 NC

* Asterisk signifies initiation or assumption of coverage.

Effective July 3, 2016, NC denotes termination of coverage.

O U T PERFO RM

N EU T RA L

N O T CO V ERED

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th Decembe r 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and

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SunPower (SPWR) 45

Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all compan ies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and Asia stocks (excluding Japan and Australia), ratings are based on a stock’s total return relative to the average total return of the relevant country or regio nal benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s abso lute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stoc ks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform wh ere an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple secto rs.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 46% (64% banking clients) Neutral/Hold* 38% (61% banking clients) Underperform/Sell* 13% (54% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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Target Price and Rating Valuation Methodology and Risks: (12 months) for SunPower (SPWR.OQ)

Method: Our $7.2 Target Price and Neutral rating is based on a sum of the parts valuation analysis. We value the core business at a 10x mulitple to 2019 EBITDA, net of debt, and discounted at 10%. We value SunPower's ownership in 8point3 at Capital Dynamic's offer price.

Risk: The key risks for our $7.2 price target and Neutral rating for Sunpower include (i) regulatory and policy changes that adversely impact solar demand and supply,(ii) timely execution of projects, (iii) technology risk, (iv) building oversupply in the industry, and (v) intense competition for panel supply and project development.

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SunPower (SPWR) 46

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): SPWR.OQ, TOTF.PA, JKS.N, 601012.SS, JASO.OQ, FSLR.OQ, NEP.N, NYLD.N, AZRE.N, RUN.OQ, WCHG.DE, 3800.HK, AMAT.OQ Credit Suisse provided investment banking services to the subject company (SPWR.OQ, TOTF.PA, JKS.N, JASO.OQ, NEP.N, NYLD.N, AZRE.N, RUN.OQ, WCHG.DE, 3800.HK, AMAT.OQ) within the past 12 months. Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment-banking, securities-related: SPWR.OQ, TOTF.PA, JKS.N, NEP.N, AZRE.N, RUN.OQ, 3800.HK Credit Suisse has managed or co-managed a public offering of securities for the subject company (JKS.N, NEP.N, AZRE.N, WCHG.DE, 3800.HK, AMAT.OQ) within the past 12 months. Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): SPWR.OQ, TOTF.PA, JKS.N, JASO.OQ, NEP.N, NYLD.N, AZRE.N, RUN.OQ, WCHG.DE, 3800.HK, AMAT.OQ Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (SPWR.OQ, TOTF.PA, JKS.N, 601012.SS, JASO.OQ, FSLR.OQ, NEP.N, NYLD.N, AZRE.N, RUN.OQ, WCHG.DE, 3800.HK, AMAT.OQ) within the next 3 months. Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): SPWR.OQ, TOTF.PA, JKS.N, NEP.N, AZRE.N, RUN.OQ, 3800.HK Credit Suisse makes a market in the securities of the following subject issuer(s): (FSLR.OQ). Credit Suisse acts as a market maker in the shares, depositary receipts, interests or units issued by, and/or any warrants or options on these shares, depositary receipts, interests or units of the following subject issuer(s): 3800.HK. Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): AEIS.OQ, AMAT.OQ, AZRE.N, FSLR.OQ, 3800.HK, JASO.OQ, JKS.N, 601012.SS, MBTN.S, NYLD.N, NEP.N, 3436.T, SPWR.OQ, RUN.OQ, TOTF.PA, WCHG.DE A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (SPWR.OQ, TOTF.PA, JKS.N, 601012.SS, JASO.OQ, FSLR.OQ, NEP.N, NYLD.N, AZRE.N, RUN.OQ, 3436.T, WCHG.DE, 3800.HK, AEIS.OQ, AMAT.OQ, MBTN.S) within the past 12 months. As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (RUN.OQ, 3436.T). As of the end of the preceding month, Credit Suisse beneficially owned between 3% and 5% of the equity and related equity derivatives of (MBTN.S). Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (RUN.OQ).

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SunPower (SPWR) 47

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