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7 Reasons Why First Solar no longer has a Business Model left

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This may be a dramatic statement to make about the world’s most valued solar company but there are several reasons which I will explain below to illustrate this point. Note the solar industry is in a league of its own in the astonishing drop it solar panel prices (80% price drop over the last 3-4 years) and the rapid increase in demand (60% CAGR over the last 10 years).So the comparison and analysis by your usual stock hacks on financial portals like Motley and Seeking Alpha is way off the mark. First Solar had the worst 2 quarters in its history in 2011 as it went from a record breaking profit company into the red. Many issues which were hidden by its past success came out in the open and some of them are life threatening. Here are these problems

1) First Solar does not have the cost advantage left,plus has a big efficiency disadvantage – First Solar in 2008 had almost a 50% lower cost than comparable crystalline silicon Chinese solar panels. Now there is almost no difference left with both around 70-75c/watt . The cost reduction by polysilicon based solar modules has been far sharper than the Cd-Te modules made by First Solar.

2) Crystalline Silicon Modules are leaving other types of Panels in the Dust – The massive improvements in the cost and efficiency of silicon modules has made other types of solar technology far behind. Solar Thermal Companies have been going bankrupt left and right while most of the other Thin Film Companies are on the deathbed as well.

3) R&D Dollars on Crystalline Modules far Outnumbers that on Cd-Te – The amount of money being spent on R&D by the numerous polycrystalline silicon panel companies and their equipment suppliers is far more than that being spent on Cadmium Tellerium Technology.Most of the dollars spend don’t add up for Cd-Te as well.

4) First Solar emphasis has given up on the residential and commercial rooftop segments – First Solar because of its lower efficiency technology has been forced out of these 2 segments of the market. It now only has the utility market which is also shrinking because governments want to focus on the small rooftop solar installations which are more democratic .See comparision of solar farms and distributed solar roof installations

5) First Solar hot temperature and recall issues – First Solar panels have issues in hot climates which the company is targeting and its manufacturing issues has already led to a loss in the hundred million dollar range.Both lead to less confidence in the company in a time where there is ferocious competition

6) First Solar can’t sell standalone panels anymore – First Solar will be selling only about 500 MW of solar panels to customers while selling 1200 MW to its inhouse system division. The reason being that its solar panels are not competitive anymore. The company will utilize only 60-70% of its capacity in 2012 because its panels can’t compete anymore.

7) Its Marketing,R&D Costs are too high – Chinese engineers and marketers are paid substantially less than that of First Solar’s staff.This was ok when First Solar was earnings 50% GM but now with 20% or below it means First Solar has to fire hundreds or lower salaries by 30-50%.First Solar can’t afford $150,000 scientists or $10 million dollar CEO’s

First Solar is only surviving now because of the DOE funded solar farm deals it has in its kitty.Its change of business model to focus on the utility market is also not much given that it has no cost advantage left and its unique technology is now at a disadvantage over the crystalline technology.The sharp improvements in cost being made in silicon means that First Solar will be at a substantial disadvantage in cost in a commodity industry.

PG

Abhishek Shah

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