First Solar, Inc. (NASDAQ:FSLR), the “last man standing” among solar stocks, has fallen. Its fourth-quarter earnings report featured enormous write-offs that produced a loss of $719.9 million, $6.92 per share, on revenue of $480.4 million, barely half the $942.32 million of revenue booked in the same quarter the previous year. FSLR stock was purged from the S&P 500.
The market capitalization is down to $3.5 billion. FSLR stock now trades at 2013 levels and the $100 per share levels achieved early this decade now appear out of reach.
Some analysts, like Gordon Johnson of Axiom Capital, are now telling investors to just dump the stock, and get out while the gettin’ is good. But our Richard Saintvilus thinks you can earn 55% on it over the next 18 months.
They can’t both be right.
Six, Six, Six
At the heart of the disagreement are First Solar’s plans to launch a Series 6 module using cadmium telluride (CdTe) technology.
First Solar directors set this plan in motion during the fall, hoping to deliver a utility-sized panel, 3 feet by 6 feet, but capable of delivering 420 watts of power with an efficiency of more than 18%, at a cost of 22 cents per watt. The company believes it has enough utility projects remaining in its pipeline, like a 250 Megawatt Moapa project near Las Vegas, to get it the revenue it needs for its great leap forward.
First Solar’s glory days were based on a technology called cadmium-telluride, with raw materials derived from mine tailings, and a laser-like focus on the utility market. The company is now changing technologies, but maintaining the focus. Utilities deliver solar power at a low, competitive price by scaling the cost of permits and construction. Owning its own plans adds to its own capex, and the power output peaks in the afternoon along with demand.
This has made them fierce opponents of the residential market, which does not add to their capex and requires storage to get through the day. That market is going its own way.
The larger problem for solar is that the industry became too efficient, too fast for its own good, which is harming the prospects for solar stocks. SunPower Corporation (NASDAQ:SPWR) is giving back 3% today, adding to a total loss of 15% in the past five days as shares were stymied at the 50-day moving average. This after missing earnings last month by nearly 20 cents.
It was once thought that solar could reach “crossover” with fossil fuel costs at a manufacturing cost of 50 cents per watt, sometime in 2016. The new First Solar panels will deliver power at half that cost, and that may not be good enough.
China Is a Problem
Chinese solar companies, meanwhile, have been engaged in a vicious price war, doubling capacity last year and stripping the players of profits.
Most of the country’s major players — Yingli Green Energy Holding Co Ltd (ADR) (NYSE:YGE), JinkoSolar Holding Co. Ltd. (ADR) (NYSE:JKS), and JA Solar Holdings Co. Ltd. (ADR) (NASDAQ:JASO) — are worth less than $1 billion. Trina Solar Limited (ADR) (NYSE:TSL), which was worth $1 billion, has been taken private by bankers.
China has won the market, but no one is making money. Utilities can now buy solar at just 35 cents per watt, consumers at 55 cents, but the economics look bad for both buyers and sellers.
Bottom Line on FSLR Stock
First Solar has bet the company on a two-year plan that, even if it works, will leave it with the same business model it has now, creating large solar power plants for utilities. It’s audacious, but its success is very uncertain, unlike the plans the industry set early in this decade, when solar power cost 10 times more, per-watt, than it does now.
Even that may not be enough unless President Trump gives the industry tariffs that keep the Chinese out of the U.S. module market. It’s a very dicey situation; one I would recommend only to speculators and those willing to take losses to see solar power shine.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
