The Greatest Questions Confronting First Solar

The Greatest Questions Confronting First Solar

It’s challenging cruising ahead for Very first Solar.

Travis Hoium

Very First Solar‘s ( NASDAQ: FSLR) just recently reported third-quarter revenues consisted of a lot of what financiers have actually come to expect from the company.

A few of the modification is due to establishing and offering fewer solar farms, but there are always a couple of warnings you should try to find in solar industry outcomes. Here are the leading dangers facing leading renewable energy stock Very first Solar, and how the company is trying to conquer them.

Large solar farm in the desert.

Image source: First Solar.

Solar panels are a commodity

The harsh truth today is that photovoltaic panels are basically a product, specifically in the utility-scale solar market where First Solar runs. That suggests there isn’t anything the business can do to change the market’s natural rate fluctuations. It can attempt to distinguish its product from those of its competitors, and lock in sales so it isn’t subject to the product market whims everyday.

As far as differentiation goes, First Solar has actually invested over $1 billion in upgrading the manufacturing of its Series 6 solar innovation. Solar’s panels aren’t the most effective in the industry, with 17%to 18.2?ficiency transforming the sun’s energy into electricity, but they produce energy more of the time than product panels.

Thin-film technology produces more energy in high-heat and low-light environments, so that’s where Very first Solar frequently wins big tasks. For now First Solar is still offering what it makes, but gross margins shrinking from over 50%a decade earlier to the mid-teens in 2019 show that Very first Solar isn’t creating a remarkable item that can command a rate premium versus commodity competition.

FSLR Gross Profit Margin (TTM) Chart

FSLR Gross Revenue Margin (TTM) information by YCharts

Very First Solar is doing an excellent task securing future sales to ride out a few of the ups and downs of the commodity solar company. It has actually reserved 5.4 gigawatts (GW) of photovoltaic panel sales in the very first three quarters of 2019, compared to 3.8 GW in deliveries. It’s locking in sales well into the 2020 s, and that’s great news for the future, even if we do not yet understand what margin those future sales will create. On a longer time horizon, the company is still affected by modifications in product solar panel performance and technology, however these contracts will mute the effect if costs fall.

Policy is key

Like any solar stock, First Solar is dependent on a friendly policy environment to endure. The Trump Administration recently reversed an exemption that had been provided to bifacial solar panels, a technology that could have been a threat to First Solar.

Developers are getting less aids than they have in the previous twenty years, but the low cost of solar power is making solar energy plants competitive when they have access to the grid. With states like Florida, Nevada, and Arizona opening up their grids to solar power, the policy environment is improving, even in the U.S.

Is First Solar coming or going in solar energy?

While First Solar has the very best balance sheet in the solar industry and is one of the couple of companies that’s paid long-term, it remains in a difficult position today. Competitive photovoltaic panels are getting better and more efficient and damaging Very first Solar’s pricing. Where it does not have protections like tariffs, it isn’t winning much company.

On the other hand, tariffs on competitors’ photovoltaic panels are coming down in the U.S., and will become gotten rid of in early2022 Companies like SunPower and JinkoSolar are also adding U.S. manufacturing that isn’t subject to tariffs. That will restrict any financial upside from protective tariffs.

The one good thing is that the solar industry overall is growing, so the need for solar panels is rising. In a market that has dealt with oversupply and falling commodity costs for more than a years, the rising tide will not lift all boats, and I see First Solar’s threats outweighing its strengths today.

Travis Hoium owns shares of First Solar and SunPower. The Motley Fool recommends First Solar. The Motley Fool has a disclosure policy.

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Travis Hoium owns shares of First Solar and SunPower. The Motley Fool advises First Solar. The Motley Fool has a disclosure policy.

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