First Solar (FSLR)
We have been bearish on First Solar for some time as we felt that the company’s thin film technology is no longer competitive with silicon panels made by giant Chinese solar factories. The company remains profitable thanks to the DOE funded huge solar farms in USA. Without these farms First Solar would be looking at bankruptcy options. However, things seem to be turning for the solar panel maker, which gave revenue and earnings forecast better than the market estimates. The company forecast revenues of $3.8 billion and EPS of $4.25 which was much higher than analysts had estimated. The main reason was the revenue recognition from a DOE solar farm. This led to a massive short squeeze leading to the stock gaining almost 50% in one day.
First Solar to reduce CdTe panel cost by 40%
Other solar stocks joined the party gaining 20-25% as well. The company also gave some other good news like they would reduce CdTe panel costs by 40% over the next 4 years with a target of 40c/watt by 2017. I am not sure whether that is great, considering that Chinese solar panels should reach 50c/watt cost by 2014. Considering the efficiency differences CdTe panels will still not be competitive with silicon solar panels in the next 2-3 years at least.
Read more about First Solar Panels Review.
First Solar buying Tetrasun
The biggest announcement from the analyst was First Solar entering the silicon panel business by buying an unheard of solar startup Tetrasun from a Japanese company. First Solar is taking the first baby steps into the highly competitive silicon panel business and plans to establish a solar factory in Japan. Note FSLR has been pushed out of the residential solar panel market as its panels are not efficient enough. This has made FSLR uncompetitive in huge residential solar markets like Japan, Germany etc. This will fill a crucial gap on FSLR portfolio though we are not sure if the company has the expertise to manage two different supply chains in CdTe and silicon panels. The company also forecast margins in the $2.5-4 range for 2014 and 2015. At the current stock price of $40, FSLR stock is neither expensive, nor cheap with a forward P/E of 10x. However we still feel that fundamentally strong Chinese solar stocks are a better bet than FSLR.
Why is First Solar a Short
First Solar stock has been on a roll in recent times and has doubled in a short span from its all time lows. This is in sharp contrast to other solar energy stocks especially the big Chinese ones which continue to make new all times lows. Many of the them like JA Solar, LDK, Suntech have become penny stocks as their huge debt burdens are clearly unsustainable. There are rumors that these will be bought over by big Chinese SOEs as the Governments can’t allow the firing of thousands of workers in these companies. So the big question is that if the counter trend in the First Solar stock justified. The current catalyst comes from First Solar announcing a couple of solar project wins in Indonesia and Middle East. My answer to that is a No.
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 comparison 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 in house 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 cannot 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 cannot afford $150,000 scientists or $10 million dollar CEOs.
Google+Solar thin film leader First Solar saw its shares zoom almost 50 percent on rosy guidance for 2013, new records for efficient solar cells and news that the company acquired solar panel tech company TetraSun. Marketwatch reported that the stock rallied so much that it “triggered Nasdaq circuit breakers” (which pauses trades if a stock moves more than 10 percent in five minutes) and trading of First Solar’s stock “was halted five times.”
First Solar’s full-year earnings are projected to hit between $4 and $4.50 a share, up from analyst projections of $3.60 a share this year. Sales are expected to come in between $3.8 billion and $4 billion, while operating income is estimated to be $430 million and $460 million.
