First Solar (NASDAQ:FSLR) is already the biggest winner of the Trump administration's new tariffs on solar imports. The threat of tariffs in 2017 led customers to put a high value on the company's thin-film panels, which weren't threatened by tariffs and ensured the cost structure of projects being built years in the future.
Now that we know what tariffs will be (30% over the next year declining to 15% in the fourth year), everyone can plan for the tariffs coming down the pipeline. Here's how First Solar can lock in its advantage for years to come.
What we already know
First Solar expects to ship 2.7 GW to 2.8 GW in 2018 and a total of 13.8 GW of solar panels from 2018 to 2020. That's the supply available for the company in the first three years of tariffs.
There's already 7.5 GW of that supply already contracted as of First Solar's last disclosure, meaning there's 6.3 GW of solar panels available to sell in the U.S. tariff-free. This is what First Solar has available to capitalize on.
What we don't know
Although we know that tariffs are going to hit U.S. solar imports, we don't know the final impact on the industry. If the overall market shrinks to 10 GW in 2018, as GTM Research anticipates, First Solar could fill up to 2.7 GW of that demand, or more in 2019 and beyond, and domestic suppliers will add around 1 GW more. Since there are 2.5 GW of solar cell imports exempted, which would likely be made into solar modules by someone (who is TBD), that leaves just 3.8 GW of solar imports that could be hit by tariffs.
The tariff may not have as big an impact as the market thinks, either. According to the U.S. Solar Market Insight from Q4 2017, strong demand for solar panels caused prices to rise $0.07 to $0.45 in Q3 2017. Tariffs are expected to add $0.10 per watt to the price of solar panels in the first year, so the price increase won't be out of line with normal price fluctuations.
What First Solar needs is the post-tariff price of solar panels to rise beyond market prices in 2017, when it booked 6.7 GW of contracts at advantageous pricing. It remains to be seen where the market will end with panel prices, but booking its remaining 6.3 GW of supply between now and 2020 at elevated prices will be a plus to the bottom line.
Can First Solar make tariff advantage last?
In 2017, though First Solar didn't have an edge over silicon-based solar panels, there was a perceived advantage from both rivals and developers. Competitors weren't willing to sell solar panels to customers and guarantee they would absorb any tariff, pushing developers to First Solar's tariff-free panels.
First Solar saw this as an opportunity to book billions in future revenue even before the tariff decision was decided. In total, more than 6.7 GW of panel bookings were made in 2017 and the company decided to increase manufacturing capacity from 4.0 GW to 5.7 GW. It locked in a benefit for years to come.
It could do the same over the next few years by booking solar panel sales past the end of tariffs in 2021. Contracting sales through 2022 or 2023 could ensure the company remains profitable well into the next decade.
Why First Solar is positioned to succeed
There's certainly a short-term tailwind for First Solar, but the company can use that to set itself up for long-term success. The windfall of 2017 was used to lock up long-term supply agreements and build new capacity, and now that we know tariffs are hitting competitors, the company can book a few more years out and guarantee strong profitability through the end of tariffs in 2021 and maybe beyond.
As solar competitors look for ways to make even the smallest profit, First Solar will be reaping profits from its unique position in the solar industry for years to come.