Please ensure Javascript is enabled for purposes of website accessibility

One Surprising Number in First Solar's Earnings Report

By Travis Hoium – Nov 3, 2018 at 9:04AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is First Solar getting shut out of international markets?

One of First Solar's (FSLR -1.63%) greatest strengths is its backlog of future solar panel sales and project developments. As of Oct. 25, the company had 11,300 megawatts (MW) of systems and third-party sales booked, or a year and a half of demand for its 7,400 MW of capacity.

Most of that backlog is in the U.S., where First Solar has benefited from the fact that it wasn't hit with tariffs that every major competitor now pays. That's allowed it to book billions in future sales in the U.S., but now investors should start worrying that First Solar is too reliant on the U.S. for the long term. 

Large solar farm in the desert.

Image source: First Solar.

The pipeline is North America heavy

In its third-quarter earnings report, First Solar reported 11,300 MW of booked future sales, which is most of its production over the next two years. But the pipeline behind those bookings consists of 6,700 MW of potential North America sales compared to just 1,200 MW of pipeline outside of North America.\

The pipeline in the U.S. is predictably strong given the company's advantage over imported solar panels that are hit with a tariff. Even though commodity solar panel prices have fallen about 30% in 2018, a 30% tariff means the end cost to customers in the U.S. is about flat with a year ago. But low demand outside of the U.S. has to be a concern. 

International solar is big business

Outside of the U.S., First Solar doesn't have the same tariff advantage, and the drop in commodity solar panel prices is hurting demand. We're seeing that with the small backlog. 

It shouldn't be understated how important international markets are for solar manufacturers. Out of 85,200 MW of solar expected to be installed in 2018, according to GTM Research, 74,300 MW, or 87%, is outside of the U.S. That's a big market to miss out on.

Where First Solar sits internationally could also give us a view of what a post-tariff world will look like for First Solar in the U.S. Tariffs are set to sunset gradually over the next four years, falling to zero in 2022. When that happens, First Solar will have to compete head to head with Asian commodity suppliers in the U.S. and abroad. If it isn't winning business in international markets today, will it win business in the U.S. after 2022? 

Another question for First Solar

First Solar has an artificial tariff advantage in the U.S. that it has exploited extremely well over the last few years. But competitors are winning a vast majority of the business internationally, where First Solar isn't protected. The fact that there's only a pipeline of 1,200 MW of sales outside of North America when that's where a vast majority of solar is being built is concerning for the solar industry's biggest company. 

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

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

First Solar, Inc. Stock Quote
First Solar, Inc.
$129.91 (-1.63%) $-2.15

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.