Executive Summary / Key Takeaways

• First Solar stands as a unique player in the solar industry, leveraging its differentiated thin-film CdTe technology and expanding vertically integrated U.S. manufacturing footprint to navigate a volatile global market marked by intense competition and geopolitical shifts, particularly concerning China.
• Despite near-term headwinds from new U.S. tariffs impacting international production and policy uncertainty surrounding the Inflation Reduction Act, the company maintains a strong contracted backlog and is strategically pivoting operations, including shifting India production towards the domestic market, to mitigate risks and capitalize on opportunities like the domestic content bonus.
• Recent financial performance reflects the complexities of scaling manufacturing and managing external disruptions, with Q1 2025 results impacted by sales mix and costs, but full-year 2025 guidance, though revised downwards due to tariff scenarios, still forecasts substantial profitability driven by U.S. production and Section 45X tax credits.
• Significant investments in R&D (CuRe, Perovskite) aim to extend technological leadership with quantifiable performance improvements, while active enforcement of its TOPCon patent portfolio adds a strategic dimension to competition within the crystalline silicon market.
• The long-term investment thesis is underpinned by robust U.S. solar demand fundamentals (driven by data centers, electrification, fossil fuel retirements) and First Solar's privileged position as a domestic manufacturer, although execution risks on capacity expansion and the unpredictable policy/trade environment remain critical factors to monitor.

Setting the Scene: America's Solar Anchor in a Shifting Global Landscape

First Solar, Inc. (NASDAQ:FSLR) occupies a distinct position within the global solar photovoltaic (PV) industry. As the only U.S.-headquartered company among the world's largest solar manufacturers, First Solar specializes in the design, manufacture, and sale of advanced, thin-film CdTe solar modules. Unlike the dominant crystalline silicon technology that characterizes much of the global market, First Solar's proprietary process utilizes a fully integrated, continuous manufacturing approach that is notably independent of Chinese crystalline silicon supply chains. This technological and operational differentiation forms the bedrock of its strategy, particularly as the industry grapples with intense pricing competition, structural overcapacity driven by Chinese manufacturers, and an increasingly complex geopolitical and trade environment.

The broader solar market is experiencing dynamic growth, fueled by the decreasing cost of solar electricity, advancements in energy storage, and ambitious decarbonization targets worldwide. In the United States, demand is further amplified by factors such as the Inflation Reduction Act (IRA), the retirement of aging fossil fuel infrastructure, the electrification trend, and a significant surge in electricity demand from data centers, AI, and reshoring manufacturing initiatives. Projections indicate U.S. electricity demand could grow by 2% annually through 2050, with data center consumption alone potentially increasing by 300% over the next decade. Solar is poised to play a critical role, representing 92% of the U.S. interconnection queue and offering a fast, cost-competitive path to new generation capacity.

However, this growth occurs against a backdrop of significant challenges. Global overcapacity, particularly from China, has led to depressed pricing in many international markets, including Europe and India. Trade policies, such as tariffs and anti-dumping/countervailing duties (AD/CVD), have become crucial tools shaping market dynamics and competitive positioning, especially in the U.S. First Solar's strategy is centered on leveraging its unique U.S. manufacturing base and technological advantages to capitalize on domestic opportunities while navigating these global complexities and advocating for policies that level the playing field against what it describes as unfair and illegal trading practices by certain foreign competitors.

Technological Edge and Innovation Pipeline: The Core Moat

At the heart of First Solar's competitive strategy lies its Cadmium Telluride (CdTe) thin-film technology. This represents a fundamental departure from the crystalline silicon (c-Si) modules that dominate the market. The tangible benefits of CdTe are quantifiable and contribute directly to First Solar's differentiated value proposition:

• Material Efficiency: CdTe modules require significantly less semiconductor material, using approximately 2% to 3% of the amount needed for conventional c-Si modules. This contributes to a lower manufacturing cost base compared to c-Si when polysilicon prices are high.
• Manufacturing Process: First Solar employs a highly automated, continuous manufacturing process that produces a module in a matter of hours, offering potential efficiencies over the batch processes often used for c-Si.
• Real-World Energy Yield: In many climates, particularly those with high temperatures or challenging light conditions, CdTe modules demonstrate superior energy performance compared to c-Si. This is due to a better temperature coefficient (less power loss at higher temperatures) and improved shading response. While specific, universally applicable percentage advantages are not consistently quantified, management commentary consistently highlights this as a key differentiator leading to higher energy production over the module's lifetime.
• Degradation Rate: First Solar warrants its modules to produce at least 98% of labeled power in the first year, with an annual degradation rate generally between 0.3% and 0.5% over a 30-year warranty period, which management describes as industry-leading.

First Solar is not resting on its laurels but actively investing in its technology roadmap through significant research and development initiatives:

• CuRe Program: This program aims to enhance the current CdTe semiconductor structure by replacing copper with other elements. The stated goals are to improve module performance through enhanced bifaciality, a better temperature coefficient, and improved warranted degradation. In May 2024, First Solar achieved a new world record CdTe research cell conversion efficiency of 23.1%, certified by NREL, based on its CuRe program. A limited commercial production run commenced in late 2024 and early 2025, with initial data indicating the expected enhanced energy profile is being realized and laboratory testing confirming the leading annual degradation rate. Phased replication across the fleet is planned starting in early 2026.
• Perovskite Research: Conducted at its European Technology Center and new development line in Ohio (expected fully operational by Q2 2025), this research explores perovskite crystals, which absorb different light wavelengths than CdTe. The potential impact is a significant increase in module efficiency through single or multi-junction devices. The goal is to develop a viable and commercially scalable perovskite product, with research focused on improving efficiency and stability.
• Tandem Devices: First Solar is researching next-generation tandem devices combining two semiconductors for very high efficiency. While exploring c-Si/CdTe tandems previously, the focus is now on a fully thin-film approach, believing it offers a more likely path to a transformative device.

The "so what" for investors is clear: these technological advancements are crucial for maintaining First Solar's competitive moat. Superior energy yield and degradation rates can command higher average selling prices (ASPs) or secure long-term contracts by offering a lower Levelized Cost of Electricity (LCOE) for project developers. The CuRe program, with its quantifiable efficiency and degradation benefits, is directly linked to contractual revenue adjusters on a significant portion of the backlog (32.5 GW as of March 31, 2025, with potential for up to $0.6 billion additional revenue). Continued R&D in perovskite and tandem cells positions First Solar for future market shifts and potential disruptive innovations, aiming to extend its technological leadership beyond current CdTe capabilities.

Manufacturing Footprint and Operational Execution: Building Domestic Strength

First Solar's strategic response to the global market environment is most visible in its aggressive expansion of its manufacturing footprint, particularly in the United States. The company is significantly increasing its global nameplate capacity, aiming for over 25 GW by 2026, with a strong emphasis on domestic production. Key milestones include:

• Completion of the Ohio manufacturing footprint expansion in Q2 2024, increasing capacity there to nearly 7 GW.
• Commencement of operations at the fourth U.S. manufacturing facility in Alabama in Q3 2024, which is ramping up production.
• Construction of the fifth U.S. manufacturing facility in Louisiana, expected to begin commercial operations in the second half of 2025.

These U.S. expansions are projected to increase domestic nameplate capacity to over 14 GW by 2026 and are strategically aligned with the incentives provided by the IRA, particularly the Section 45X advanced manufacturing production credit. This credit, estimated at approximately 17.0 cents per watt for U.S.-produced and sold modules, is a significant driver of profitability and liquidity, as demonstrated by the sale of $857.2 million of 2024 credits for $818.6 million in cash.

Operational execution, however, has faced challenges. The ramp-up of new facilities, integration of new technologies like CuRe, and external disruptions have impacted performance. Manufacturing issues affecting initial Series 7 production in 2023 and 2024 led to estimated aggregate warranty losses ranging from $56 million to $100 million, with $56 million accrued as of December 31, 2024. While corrective actions have been taken and validated by a third party, these issues resulted in increased warranty charges, inventory reserves, and shipment delays, contributing to higher logistics and warehousing costs. External events like hurricanes, port strikes, and even an IT outage in Q3 2024 also caused temporary operational disruptions.

In response to the new U.S. tariffs imposed in April 2025, which create significant economic headwinds for international production selling into the U.S., First Solar is strategically adjusting its operational plans. This includes reducing production output at Malaysia and Vietnam facilities starting in Q2 2025, with potential for partial or full idling depending on the tariff scenario. The India facility, previously exporting a significant portion of its production to the U.S., is expected to pivot towards the domestic India market in the second half of 2025 to avoid expected tariff impacts, increasing its domestic book and bill dependency. These operational pivots, while necessary to mitigate tariff exposure, are expected to result in increased underutilization and period costs in 2025.

Financial Performance: A Reflection of Strategy and Environment

First Solar's recent financial performance reflects the interplay of its strategic growth, operational execution, and the volatile external environment.

For the full year 2024, net sales reached $4.2 billion, a 27% increase year-over-year, driven by higher volumes sold (14.1 GW). Gross margin increased to 44% for the full year. However, full-year 2024 diluted EPS of $12.02 came in below the updated guidance range ($13.00-$13.50), primarily due to discrete costs such as a discount on the sale of 45X credits, warranty charges for Series 7 issues, increased logistics costs from shipment delays, and higher ramp/underutilization costs.

Q1 2025 saw net sales of $844.6 million, a 6.4% increase year-over-year, driven by an 8% increase in volume sold (2.9 GW). Gross profit margin decreased to 40.8% from 43.6% in Q1 2024, primarily due to higher freight, demurrage, detention, and module storage costs, as well as a sales mix with more U.S.-produced modules (which have higher production costs before considering the 45X credit), partially offset by the benefit of the 45X credit. Operating expenses increased due to higher credit losses, legal costs, R&D investment, and production start-up expenses for Louisiana. Foreign currency losses also increased significantly. Net income for Q1 2025 was $209.5 million, resulting in diluted EPS of $1.95, below the low end of the prior forecast ($2.20-$2.70), primarily attributed to a change in the mix of U.S. versus international products sold compared to expectations.

Liquidity remains a core strength. As of March 31, 2025, cash, cash equivalents, and marketable securities totaled $0.9 billion, a decrease from $1.8 billion at year-end 2024, driven by capital expenditures for U.S. facilities, increased payments to suppliers, and operating expenses, partially offset by the remaining proceeds from the 2024 45X credit sale. The company's net cash position (cash less total debt) was not explicitly stated for Q1 2025 but was $1.2 billion at year-end 2024. First Solar continues to fund significant capital expenditures ($1.5 billion in 2024, $1.0 billion - $1.5 billion guided for 2025) for its capacity expansions and R&D, relying on operating cash flows, customer advance payments, and 45X credits, with an untapped $1.0 billion revolving credit facility providing additional flexibility.

Comparing key financial metrics to competitors like JinkoSolar , Canadian Solar (CSIQ), and SunPower (SPWR) using available TTM data highlights First Solar's differentiated profile. While competitors like JKS and CSIQ often exhibit higher revenue growth rates (specific TTM growth rates were not readily available, but historical annual data showed competitors with higher growth in some periods), First Solar demonstrates superior profitability margins (TTM Gross Margin 43.52%, Operating Margin 32.91%, Net Margin 29.72%, EBITDA Margin 40.57%) compared to JKS (TTM Gross Margin 11%, Operating Margin -4%, Net Margin 0.06%), CSIQ (TTM Gross Margin 17%, Operating Margin -2%, Net Margin 0.6%), and SPWR (2023 Gross Margin 14%, Operating Margin -11%, Net Margin -15%). First Solar's strong margins, particularly net margin, underscore the profitability enabled by its technology, U.S. manufacturing, and the 45X credit, positioning it favorably against competitors facing tighter margins in oversupplied markets. Its lower Debt/Equity ratio (TTM 0.08 vs. JKS TTM 1.85, CSIQ TTM 2.10, SPWR 2023 1.13) also indicates a stronger balance sheet.

Outlook and Guidance: Navigating Uncertainty

First Solar's outlook for 2025 is heavily influenced by the uncertain policy and trade environment. The company revised its full-year 2025 guidance downwards to reflect the expected impact of new tariffs implemented in April 2025.

• Net Sales: Revised to $4.5 billion - $5.5 billion (from $5.3 billion - $5.8 billion).
• Gross Margin: Expected between $1.96 billion and $2.47 billion (approx. 44%), including $1.65 billion - $1.7 billion of Section 45X credits.
• Operating Income: Expected between $1.45 billion and $2.0 billion (approx. 35% margin).
• Earnings Per Diluted Share: Revised to $12.50 - $17.50 (from $17.00 - $20.00).
• Capital Expenditures: Expected between $1.0 billion and $1.5 billion.
• Year-End Net Cash: Anticipated between $0.4 billion and $0.9 billion (excluding potential 2025 45X credit sales).

The guidance range reflects different scenarios: the upper end assumes the current 10% universal tariff remains, while the lower end assumes the higher country-specific reciprocal tariffs (26% India, 24% Malaysia, 46% Vietnam) take effect in July. This tariff impact is expected to reduce volume sold (particularly international Series 6 book and bill volume removed, and a portion of India production reallocated domestically), lower ASPs on some international sales, and increase costs (module import tariffs, raw material tariffs, underutilization charges from reduced international production, logistics/warehousing).

Key assumptions include the uncertainty around future tariff rates and the timing/outcome of the budget reconciliation process impacting IRA tax credits. Management assumes ongoing negotiations with customers on tariff allocation for existing international contracts, which may lead to contract terminations for approximately 12 GW of international backlog by year-end 2025 if parties cannot agree on cost sharing. They also anticipate continued project delays for customers, leading to a back-end loaded shipment profile and higher warehousing costs.

Despite these near-term challenges, the guidance implicitly signals confidence in the underlying U.S. demand and First Solar's ability to leverage its domestic position. The forecast for U.S. manufactured volumes sold (9.5-9.8 GW) remains unchanged. The strategic pivot in India production aims to avoid U.S. tariff exposure while capitalizing on the domestic India market and potentially optimizing future U.S. supply through blending international product that enables the domestic content bonus. The substantial Section 45X credits are expected to continue driving strong gross and operating margins, even with increased costs.

The Q2 2025 earnings cadence is forecast with module sales of 3-3.9 GW, $310 million - $350 million in 45X credits, and diluted EPS between $2.00 and $3.00.

Competitive Dynamics and Strategic Response: Standing Apart

First Solar operates in a fiercely competitive global market dominated by crystalline silicon manufacturers, many of whom are based in China and benefit from significant scale and state support. Competition is primarily based on price per watt, but also increasingly on module attributes, reliability, warranty terms, and supply chain transparency/sustainability.

Key competitive forces include:

• Pricing Pressure: Intense competition, particularly from Chinese manufacturers operating at massive scale, leads to rapid price declines globally. Competitors may operate at minimal or even negative margins, potentially enabled by sovereign capital. While U.S. pricing has been relatively more stable due to IRA demand and tariffs, this remains a constant threat.
• Overcapacity: Significant global production capacity, especially in China, creates structural supply/demand imbalances, exacerbating pricing volatility. Projections indicated a ~40 GW U.S. oversupply by year-end 2024.
• Trade Policies: Tariffs, AD/CVD, and anti-circumvention measures are critical battlegrounds. First Solar actively participates in trade actions (e.g., AD/CVD petitions against Southeast Asia) to counter what it views as unfair trade practices. Recent affirmative preliminary determinations in the Solar 3 case against Cambodia, Malaysia, Thailand, and Vietnam, finding substantial duties, validate these concerns. However, Chinese manufacturers are adapting by shifting production to other regions (e.g., Laos, Indonesia, Saudi Arabia), creating a "whack-a-mole" dynamic.
• Technology Competition: While c-Si dominates, advancements continue. The rise of TOPCon technology within c-Si has led to significant intellectual property disputes among manufacturers. First Solar, through its acquisition of TetraSun, holds a TOPCon patent portfolio and is actively enforcing its rights through litigation (e.g., against JinkoSolar (JKS)) and licensing (e.g., with Talon PV). This creates IP-based uncertainty for c-Si players and highlights First Solar's differentiated, IP-independent CdTe technology.
• Supply Chain Control: Competitors, particularly new c-Si entrants in the U.S., may rely heavily on imported components (e.g., pattern glass, aluminum), potentially facing higher costs or supply constraints compared to First Solar's established, largely domestic supply chain for key materials.

First Solar strategically positions itself to counter these forces:

• U.S. Manufacturing Focus: By building significant vertically integrated capacity in the U.S., First Solar directly benefits from the IRA's manufacturing credits and enables customers to qualify for the domestic content bonus, providing a competitive advantage in the crucial U.S. market. This also mitigates exposure to international trade barriers and supply chain risks affecting imported modules.
• Technological Differentiation: The inherent advantages of CdTe (real-world energy yield, degradation, material efficiency) offer a performance-based differentiation beyond price, appealing to sophisticated utility-scale customers focused on LCOE and long-term reliability.
• IP Enforcement: Leveraging its TOPCon patent portfolio creates potential leverage within the c-Si market, potentially generating licensing revenue or hindering competitors' ability to produce certain high-efficiency modules.
• Policy Advocacy: Actively engaging with policymakers to advocate for stronger trade enforcement and policies like FEOC provisions aims to create a more level playing field and prevent adversarial governments from benefiting from U.S. incentives.
• Responsible Solar: Commitment to sustainability (recycling, low carbon footprint) provides a non-price competitive advantage, aligning with the ESG goals of many utility and corporate customers.

While competitors like JKS and CSIQ lead in global market share and often demonstrate higher revenue growth, First Solar's strategic focus on the protected U.S. market, combined with its superior profitability margins and strong balance sheet, positions it as a resilient player capable of capitalizing on domestic opportunities despite the challenging global competitive landscape.

Risks and Challenges

Investing in First Solar involves navigating several key risks:

• Policy and Trade Uncertainty: The most significant near-term risk stems from the unpredictable U.S. policy environment. The outcome of the budget reconciliation process impacting IRA tax credits (45X, ITC, PTC), the potential for changes under a new administration (including executive orders or legislative action), and the final determination and duration of tariffs (universal, reciprocal, AD/CVD, circumvention) could materially impact demand, pricing, and profitability.
• Tariff Impacts on International Operations: The new U.S. tariffs create direct economic headwinds for international production destined for the U.S., potentially forcing production cuts or idling at Malaysia and Vietnam facilities, leading to underutilization costs and impacting the profitability of international backlog. Uncertainty regarding tariff cost allocation with customers could lead to contract terminations.
• Manufacturing and Operational Execution: Ramping up new facilities, integrating new technologies (CuRe), and managing potential future manufacturing issues or external disruptions could lead to increased costs, warranty claims, and delays, impacting financial performance.
• Competitive Pressures: Continued global overcapacity and aggressive pricing by competitors, particularly from China, could erode margins if not fully offset by trade protections or technological advantages. The "whack-a-mole" nature of trade enforcement means new sources of unfairly traded imports could emerge.
• Supply Chain Risks: While building a domestic supply chain, dependencies on certain imported raw materials (e.g., tellurium, glass, aluminum) expose the company to potential supply disruptions, cost increases (including from tariffs on raw materials), or export controls (e.g., China's controls on tellurium).
• Litigation Risks: Ongoing legal proceedings, including IP enforcement actions and other claims, could result in significant costs, unfavorable outcomes, and diversion of management resources.
• Customer and Market Dynamics: Project development delays, changes in strategic direction by large customers (e.g., pivots away from renewables), or insufficient lender/investor interest due to market uncertainty could impact order flow and shipment timing.

Conclusion

First Solar's story is one of strategic differentiation and resilience in a turbulent global solar market. By anchoring its operations in the United States with a unique, vertically integrated thin-film technology, the company has carved out a privileged position, particularly within the protected U.S. market. Its core CdTe technology offers quantifiable performance advantages, and ongoing R&D in areas like CuRe and Perovskite aims to extend this technological moat into the future.

While the company faces significant near-term headwinds from evolving U.S. trade policies, particularly the impact of new tariffs on its international manufacturing footprint and the uncertainty surrounding the IRA, its strategic response – including operational pivots and leveraging its domestic strength – demonstrates adaptability. The revised 2025 guidance reflects these challenges but still forecasts substantial profitability, heavily underpinned by U.S. production and the benefits of the Section 45X tax credit.

The long-term investment thesis remains compelling, driven by robust U.S. solar demand fundamentals fueled by electrification and the burgeoning needs of data centers and reshoring industries. First Solar's position as a leading domestic manufacturer, unencumbered by potential FEOC restrictions affecting many competitors, makes it a key beneficiary of this trend. However, investors must closely monitor the unpredictable policy and trade landscape, the company's execution on its ambitious capacity expansion and technology roadmap, and the ongoing dynamics of global competition. Despite the volatility, First Solar's differentiated technology, strategic U.S. focus, and strong financial position provide a foundation for potential long-term value creation.