The renewable energy sector is far from an easy place to get an investment right, but probably even more so these days amid geopolitical tensions, ongoing trade disruption, and a divisive debate on the future of the global energy market. First Solar Inc. (FSLR) has been one of the latest victims of such uncertainty, with the share price down an alarming 60% from a 2023 peak.
First Solar (FSLR) price history over the past three years
While I’m generally bullish on the company’s outlook due to domestic manufacturing capabilities and government incentives in place, it remains highly vulnerable to changing global trading conditions. With such widespread operational uncertainty, I can understand the market’s cautious approach in recent times. However, there is a credible case for an investment for investors with a higher risk tolerance than I. For now, though, I’m neutral and staying on the sidelines.
First Solar’s Competitive Advantage
Those bullish on the company tend to point to the technical advantages of using cadmium telluride (CdTe) thin-film solar modules instead of crystalline silicon. While about 95% of the industry uses the latter, the former provides additional efficiency in darker and high-heat environments and has a lower carbon footprint. With most of the market for this technology in the Middle East, India, and North America, it fits what customers seek.
Though technical advantages are one thing, having an in-house, vertically integrated supply chain is the real highlight. This allows greater control in material sourcing, module assembly, and other operations, leading to more predictable spending, consistent performance, and resilient supply chains, all invaluable in the currently unstable geopolitical environment.
First Solar (FSLR) vs. S&P 500 (SPY)
Working with the government has long been an element of the company’s success, with a partnership alongside the U.S. Department of Energy resulting in the development of CuRe copper replacement technology, again leading to higher energy yields and better stability over time. Such partnerships and technological innovation put the firm in a strong position over competitors relying on less efficient systems, especially those relying on global supply chains facing uncertainty ahead.
Political Support Amid Trade Friction
One of the biggest reasons FSLR bulls are joyous is that the company’s management has taken advantage of tax credits from the Inflation Reduction Act, which rewards companies for each watt of domestically manufactured solar technology. With a new factory in Louisiana expected to go online later in the year and capable of producing 16GW by 2026, there is a lot of potential here.
In the meantime, there is difficulty on the horizon with tariffs to be navigated. At present, recently reinstated tariffs on solar products from parts of Southeast Asia, which make up 75% of U.S. imports, will hit the bottom line. While only a third of First Solar’s production is impacted by regional imports, it could significantly impact volumes until alternative arrangements can be made. Investors have likely digested most of this news by now. Still, with customers’ deliveries likely to be disrupted, the hangover from ongoing tariff uncertainty will unlikely go away soon.
Despite the uncertainty, the backlog of 66.3GW shows there is still plenty of demand for products across a range of geographies and pricing tiers. Although many contracts will not protect against inflation or tariff volatility, they provide stable revenue that can be offset by efficiencies or innovation, while competitors may struggle further.
First Solar’s Disappointing Q1 Report
Despite plenty of reasons to be bullish, most analysts would probably agree that Q1 2025 was a letdown. EPS came in well below estimates of $2.51 at $1.95, and revenues of $845 million were well below the $1.5 billion seen in Q4. With margins also slipping, management blamed weaker pricing internationally, early-stage costs for new facilities, and shipping issues.
First Solar (FSLR) estimated and reported earnings history
While issues with supply chain and demand cyclicality are nothing new, a massive cut in guidance from management was a real problem for investors. This trend was common amid tariff uncertainty and so too with FSLR. The 8% slump post-earnings showed the company-specific challenges, such as execution risk in Louisiana, still weighing on sentiment for existing and potential investors.
First Solar Forecast EPS vs Actual EPS
Assessing First Solar’s Valuation
Investors will be divided about what will happen to the share price. With the shares trading at just 10.5x forward earnings, many will suggest that this could be fairly cheap for a company with clear tailwinds from favourable government policy. Still, the geopolitical and execution risks clearly weigh on investor confidence.
A discounted cash flow (DCF) calculation puts fair value in the region of $224, about 77% higher than the current level. If there are issues with the factory in Louisiana, or if trade tariffs continue to worry investors, some analysts estimate that the share price may trend towards $140, suggesting that most downside risk is perhaps already priced in.
Is FSLR a Good Stock to Buy?
Professional analysts are generally bullish on FSLR’s outlook for the rest of this year. On Wall Street, First Solar carries a Strong Buy rating based on 27 analyst ratings. Over the past three months, 22 analysts have been bullish, four have been neutral, and one has been bearish. The current average price target for FSLR stock is $198.17, suggesting ~51% upside over the coming twelve months.
I’m bullish on the wider renewable energy sector over the coming decades, but First Solar will not be a buy-and-forget type of stock. While there are a lot of reasons to like it at this price, there are likely to be plenty of disappointments down the track that undermine the share price.
However, if management can focus on operational improvements and absorb the difficulties associated with trading tariffs, then patient investors could be in a position to see positive returns over the long run. Investors willing to pay close attention to the political, regulatory, and economic backdrop may have a winner here. Still, they must be willing to tolerate some pain along the way. For now, I see safer opportunities out there, so I will keep my distance until the outlook becomes clearer.
