Image source: Getty Images.
As the solar industry goes through its biggest challenges since 2012, First Solar, Inc. (FSLR -2.09%) has held up better than many competitors. The drop in solar panel prices that's putting pressure on massive manufacturers like Trina Solar (NYSE: TSL) and Canadian Solar (CSIQ -3.90%), whose primary business is just to sell solar panels, hasn't affected First Solar in the same way.
First Solar has escaped some of that scrutiny because it has a great balance sheet, and some because it has improved efficiency in the last two years, and it's really those kind of structural advantages that make First Solar built to last in the solar industry.
Image source: First Solar.
Technology that's differentiating itself
One of the biggest lessons investors should take from the solar industry over the past five years is that technology matters. Differentiating yourself, particularly with efficiency, is the only way to gain a sustainable advantage over competitors. Otherwise, you're in a position like Trina Solar and Canadian Solar, just trying to compete on price with companies making a product that's very similar to your own.
First Solar and SunPower (SPWR -2.17%) have been the two solar panel manufacturers that have been able to differentiate themselves with technology. First Solar isn't the high-efficiency manufacturer SunPower is, reaching panel efficiency of over 24%, but First Solar's best thin-film panels are now 16.4% efficient, and they cost much less than SunPower's panels. The goal is to increase that efficiency to near 20% in the next few years.
Not only is First Solar improving efficiency, its thin-film technology performs better in some conditions than the crystalline silicon panels made by most competitors. First Solar performs better in hot environments, humid weather, and under shade. The company says the difference can be an 11% improvement in performance over competitors.
Technology matters in solar energy, and First Solar has a lead over commodity competitors -- a lead it's building on every day.
A balance sheet solar manufacturers envy
Differentiation is important, but it wouldn't mean anything if First Solar didn't have a balance sheet that could withstand the industry's ups and downs. It's on the balance sheet that First Solar's strength and flexibility really start to become clear.
First Solar ended the second quarter with $1.7 billion in cash and just $233 million in long-term debt. And look at how its cash position has grown over the past decade compared to competitors.
FSLR Cash and Equivalents (Quarterly) data by YCharts.
Not only is the company's cash level impressive, look at its long-term debt trend compared to the companies I've highlighted above.
FSLR Total Long Term Debt (Quarterly) data by YChartsYCharts.
This look at debt doesn't account for project assets on the balance sheet, but it shows how little leverage First Solar has, which is key in a turbulent industry.
Giving itself options to thrive in the future
It's hard to identify a company better prepared to weather the storm coming in the solar industry better than First Solar. It has technology that's making it more competitive all the time, and its balance sheet provides it with flexibility to develop projects or acquire technology where it needs to.
The next year or two may be rough for First Solar, and most solar companies, but the company is set up well to survive and thrive when the industry improves. And that makes it worth watching, because weaker companies will likely fall, leaving the survivors to pick up the pieces -- and market share -- that's left in the solar industry.
