Back when First Solar, Inc. (NASDAQ:FSLR) was trading in the mid-teens, I wrote frequently (and received a lot of criticism) about the long-term viability of the company and the solar industry in general. Since then, the market seems to agree that the big players in the solar industry are not going anywhere, as shares of First Solar have nearly quadrupled from the lows. While I still wholeheartedly believe that First Solar, Inc. (NASDAQ:FSLR) is going to be a major force over the coming years, now seems like a good time to revisit this one and see whether the great buying opportunity has passed us by or if it still makes sense to buy in at these levels.
A bit about the company and what it does
First Solar is one of the leading designers and manufacturers of solar PV (photovoltaic) modules. Through their proprietary thin-film technologies, the company produces their modules with the least possible amount of material, and is constantly breaking its own efficiency records. Last year, First Solar, Inc. (NASDAQ:FSLR) produced about 1.9 gigawatts of solar modules.
The solar industry is adapting to the current economic climate (this is a good thing)
Most of the pessimism that caused the dive in First Solar’s share price last year was caused by two things. First, there has been a tremendous amount of oversupply in the industry for several years now, mostly due to Chinese solar companies. Second, pricing of solar modules plummeted even more than would be expected, due to the discontinuation or reduction of solar incentives and subsidies around the globe.
In regards to the first issue, the overcapacity issue seems to be taking care of itself somewhat with the exit of several of the smaller players from the industry, and reduced production from the larger players. Additionally, the large Chinese players such as Trina Solar Limited (ADR) (NYSE:TSL) and Suntech Power Holdings Co., Ltd. (NYSE:STP) have greatly cut production to more reasonable levels as a result of reduced demand from Europe.
As far as the second issue goes, I view the current trend toward declining global incentives to be very healthy for the long-term growth of the solar industry. With decreasing incentives and climbing sales, I get the impression that solar is indeed becoming more desirable and competitive with other forms of power.
Over the coming years, as the price of solar systems becomes more affordable, demand should increase significantly. Since First Solar, Inc. (NASDAQ:FSLR) continues to beat its own efficiency records, they should be able to lead the market in both affordability and profit margins. Currently, First Solar’s manufacturing costs are around $0.68 per watt, and the company believes that it can achieve a cost per watt of under $0.50 by the end of 2015, while at the same time increasing efficiency. This level of price reductions will be passed to the consumer, and this should provide increasing sales for years to come.