Canadian Solar: Positioned for the Energy Shift

Canadian Solar is one of the world’s largest solar technology and renewable energy companies, operating across both solar manufacturing and utility scale energy development. Known for its vertically integrated business model, global footprint, and growing presence in battery energy storage, the company combines solar module production with project development and ownership through Recurrent Energy. As global electricity demand rises due to electrification, AI, data centers, and decarbonization, Canadian Solar aims to strengthen its position across the renewable energy value chain while expanding into higher margin and more recurring sources of revenue. The question remains: Does this renewable energy company deserve a spot in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Canadian Solar at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Canadian Solar, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Canadian Solar was founded in 2001 in Ontario, Canada, and has grown into one of the world’s largest solar technology and renewable energy companies. The company operates through two main segments that together cover a large part of the solar value chain. The first segment is CSI Solar, which designs, manufactures, and sells solar modules, solar system components, inverters, and battery energy storage products. This business gives Canadian Solar exposure to the global demand for solar panels used in residential, commercial, industrial, and utility scale projects. CSI Solar follows a flexible vertically integrated model, meaning the company can produce many key parts of a solar module internally, including ingots, wafers, cells, and modules, while still using third party suppliers when it is more efficient. This gives the company more control over quality, cost, and supply, while also allowing it to adjust production depending on market conditions. As of the end of 2025, Canadian Solar had annual module capacity of 51,3 GW, cell capacity of 32,4 GW, wafer capacity of 37,0 GW, and ingot capacity of 31,0 GW, showing the scale of its manufacturing operations. The company has also become increasingly active in battery storage through its e-STORAGE business, which provides utility scale battery energy storage systems, long term service agreements, and related support services. Its SolBank platform is designed for large utility scale projects, while EP Cube targets the residential storage market. This expands Canadian Solar beyond solar panels and into the broader energy transition, where storage is becoming more important as grids need to manage intermittent renewable power. The second segment is Recurrent Energy, which develops, builds, sells, owns, and operates utility scale solar and battery storage projects around the world. This business gives Canadian Solar exposure to the downstream part of the renewable energy market, where value is created through project development, power purchase agreements, asset sales, electricity sales, operations, and asset management. Recurrent Energy develops projects across North America, Europe, Latin America, Japan, Australia, and other markets, and it managed around 15 GW of solar and battery storage projects under operation and maintenance contracts at the end of 2025. The segment is strategically important because it gives Canadian Solar more than just manufacturing exposure. Solar panel manufacturing can be cyclical and highly competitive, but project development can create additional value through long term contracts, recurring revenue, and the ability to sell completed or advanced projects to infrastructure investors. The $500 million investment from BlackRock into Recurrent Energy in 2024 also supports the value of this platform and gives Canadian Solar more capital to expand its project pipeline. Canadian Solar’s competitive moat is built on scale, cost efficiency, vertical integration, global reach, brand recognition, and its dual business model across both manufacturing and project development.  In solar modules, the company’s advantage is not that it always offers the most premium or highest efficiency product in the market, but that it can offer reliable and cost effective solar products at large scale. This matters because solar is a market where customers often focus heavily on the cost of electricity produced over the lifetime of a project. If Canadian Solar can offer panels and storage systems that are dependable, bankable, and attractively priced, it can remain competitive even in a market with intense price pressure. Its flexible manufacturing model helps reduce costs and improve supply reliability, while its global production footprint gives the company more flexibility when tariffs, trade restrictions, or regional demand patterns change. Canadian Solar’s long operating history also strengthens customer trust. The company has been publicly listed since 2006 and is recognized as a major global solar module manufacturer, which matters because utilities, developers, banks, and infrastructure investors often prefer suppliers with a long record of delivering products at scale. Switching costs also support the business to some extent. Once solar panels or battery systems are installed in a large project, customers do not frequently change suppliers for that specific system because the assets are expected to operate for decades and are supported by warranties, service agreements, monitoring, and maintenance. This does not eliminate competition when new projects are awarded, but it does make reliability and long term customer relationships important. Recurrent Energy adds another layer to the moat because project development requires land, permits, grid connections, power contracts, financing relationships, and execution experience. These capabilities take time to build and are not easy for smaller players to replicate. Canadian Solar can also benefit from internal coordination between CSI Solar and Recurrent Energy, as its project business can source modules and storage products from the manufacturing side, while the manufacturing business benefits from insight into customer needs and project demand.

Management

Dr. Xiaohua “Shawn” Qu is the founder, Chairman, and CEO of Canadian Solar, a role he has held since founding the company in 2001. Over more than two decades, he has transformed Canadian Solar from a small renewable energy startup into one of the world’s largest solar technology and renewable energy companies. Under his leadership, Canadian Solar has delivered approximately 174 GW of solar modules and more than 18 GWh of battery energy storage solutions globally. Shawn Qu has guided the company through multiple industry cycles, including the 2008 financial crisis, sharp declines in solar pricing, changing government subsidy frameworks, and periods of significant oversupply that forced many competitors out of the market. His ability to navigate these challenges while continuing to expand Canadian Solar’s global footprint highlights both his resilience and long-term strategic mindset. Before founding Canadian Solar, Shawn Qu worked at Ontario Power Generation, where he gained firsthand exposure to solar energy projects. This experience strengthened his conviction that solar power could become a meaningful part of the global energy system. His interest in renewable energy was rooted not only in commercial opportunity but also in a broader belief that clean energy could create long-term societal benefits. When he launched Canadian Solar, he initially did not envision building a multi-billion dollar global company. Instead, his ambition was to work in a field he believed in while creating financial stability for his family. A major turning point came when Canadian Solar secured a breakthrough contract supplying solar battery chargers for Volkswagen’s operations in Mexico, helping establish the company as a credible global supplier. Shawn Qu holds a Bachelor of Science in Applied Physics from Tsinghua University in Beijing, a Master of Science in Physics from the University of Manitoba, and a PhD in Materials Science from the University of Toronto. His academic background in semiconductors and solar materials has influenced Canadian Solar’s technical focus and vertically integrated manufacturing strategy. Rather than relying entirely on third party suppliers, the company built expertise across several stages of the solar value chain, including wafers, cells, modules, and battery storage technologies. This technical foundation has supported Canadian Solar’s ability to improve product efficiency, lower manufacturing costs, and remain competitive in an industry where technological progress and cost reductions are essential. Over time, Shawn Qu has also overseen Canadian Solar’s evolution beyond solar module manufacturing into a broader renewable energy platform. Through the expansion of Recurrent Energy, the company has established a significant global project development business focused on utility scale solar and battery storage projects. This shift has diversified Canadian Solar’s business model and increased its exposure to recurring revenues from electricity sales, long-term power purchase agreements, operations, and project monetization. Shawn Qu has also demonstrated a pragmatic approach to capital allocation. The listing of CSI Solar on the Shanghai STAR Market in 2023 raised substantial capital to support manufacturing growth, while the strategic partnership with BlackRock in Recurrent Energy provided additional funding to accelerate project development and strengthen the balance sheet. Shawn Qu is generally described as modest, thoughtful, and highly disciplined in his leadership style. He tends to maintain a relatively low public profile while remaining closely involved in major strategic decisions. Although he has increasingly delegated operational responsibilities to members of the executive team, he continues to play a central role in shaping the company’s long-term direction. His leadership approach appears rooted in pragmatism, operational discipline, and a willingness to adapt to changing market conditions rather than chasing short-term trends. Founder leadership can often be an important advantage in capital intensive and cyclical industries, particularly when management must navigate periods of uncertainty. Shawn Qu’s combination of scientific expertise, operational experience, founder ownership, and long-term thinking has helped Canadian Solar remain relevant in an industry where many once prominent competitors no longer exist. Given his track record of adapting to technological change, regulatory shifts, and shifting industry dynamics, Shawn Qu appears well positioned to continue guiding Canadian Solar through the next phase of global solar and energy storage adoption.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Canadian Solar has historically generated disappointing ROIC, with returns remaining below 10% in every year over the past decade. The trend has become particularly weak in recent years, with ROIC falling to just 0,9% in 2024 and only modestly recovering to 1,4% in 2025. These are clearly underwhelming numbers and significantly below what we would ideally like to see from a long-term compounder. However, there are several structural reasons why Canadian Solar has struggled to generate higher returns on capital, and these challenges are closely tied to the nature of the solar industry. First, Canadian Solar operates in an extremely capital intensive industry. Manufacturing solar modules requires substantial investments in factories, machinery, automation, and production lines for ingots, wafers, cells, and modules. In addition, Canadian Solar has invested heavily in battery storage manufacturing and project development through Recurrent Energy. Unlike software or branded consumer companies that can scale with relatively little capital, solar companies often need to continuously reinvest significant amounts simply to remain competitive. Rapid technological change means manufacturers must regularly upgrade production lines to improve efficiency and lower costs. This naturally weighs on ROIC because the capital base grows quickly, while returns on those investments may take years to materialize. Second, the solar module business is highly competitive and partly commoditized, which puts constant pressure on profitability. While Canadian Solar has built a strong position as a reliable and cost competitive supplier, module pricing is often determined by industry supply and demand rather than pricing power. Over the past several years, the industry has faced periods of severe oversupply, particularly from Chinese manufacturers, leading to sharp declines in average selling prices. Even if shipment volumes increase, lower prices can significantly reduce profitability. This dynamic has been one of the biggest reasons why Canadian Solar has struggled to generate strong returns on invested capital despite continued growth in deliveries. Third, Canadian Solar’s vertically integrated model and project development activities increase the amount of invested capital required. The company does not simply manufacture and sell solar panels. Through Recurrent Energy, Canadian Solar also develops, builds, and sometimes retains ownership of utility scale solar and battery storage projects. While this strategy can create attractive long term opportunities and recurring revenues through electricity sales and long term contracts, it also requires substantial upfront investments. Before a project can generate earnings, Canadian Solar often needs to spend large amounts on land, permits, grid connections, equipment, and construction. These projects can take several years to complete, meaning the company often invests significant amounts of money long before seeing meaningful returns. This can weigh on ROIC in the short term, even if those investments eventually create value. The sharp deterioration in ROIC during 2024 and 2025 was largely driven by industry conditions. In 2024, Canadian Solar experienced a significant decline in revenue and profitability due to falling solar module prices and weaker margins across the sector. At the same time, the company continued investing aggressively in manufacturing expansion, battery storage capabilities, and project development. This combination of lower earnings and a larger capital base caused ROIC to fall to its lowest level in more than a decade. While 2025 showed a slight improvement, returns remained very weak because pricing pressure and industry oversupply continued to weigh on profitability. Looking ahead, ROIC is expected to improve from these depressed levels, although it will likely remain below what most investors would consider exceptional. Several factors support the possibility of higher returns over time. First, battery energy storage is becoming a larger part of the business and tends to offer higher margins and more differentiated products than solar modules. Canadian Solar’s e-STORAGE business has already built a large backlog, and continued growth here could improve profitability. Second, Recurrent Energy provides exposure to project development and recurring cash flows, which could become a more meaningful contributor to earnings as projects mature and are monetized. Third, if oversupply in the solar module market gradually eases and weaker competitors exit the industry, pricing could stabilize and support better margins. That said, investors should probably not expect Canadian Solar to consistently generate ROIC above 10% for long periods. The structural characteristics of the industry, including high capital intensity, fierce competition, pricing pressure, and constant reinvestment needs, make very high returns on capital difficult to achieve.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Canadian Solar has delivered consistent equity growth over the past decade, increasing equity every single year from 2016 through 2025. This is particularly notable given the volatility of the solar industry, where many companies have experienced bankruptcies, weak profitability, or significant balance sheet pressure during downturns. While the pace of growth has varied considerably from year to year, the long-term trend has clearly been positive, suggesting that Canadian Solar has gradually built shareholder value despite operating in a highly competitive and cyclical industry. One of the main reasons for this steady equity growth is that Canadian Solar has consistently reinvested a large portion of its profits back into the business rather than paying dividends. Unlike mature companies that return significant cash to shareholders, Canadian Solar has prioritized expanding production capacity, entering new markets, developing battery storage solutions, and growing its Recurrent Energy platform. Because the company retains most of its earnings, profits generated over time remain on the balance sheet and contribute to a growing equity base. Another important factor is Canadian Solar’s long-term focus on growth. The company has continued investing in new factories, technology improvements, and project development even during weaker periods for the solar market. While this has contributed to lower ROIC, it has also supported long-term expansion and increased the company’s asset base. Over time, these investments have helped Canadian Solar become a much larger global player in both solar modules and battery storage, which has supported growth in equity. The sharp increase in equity in 2023 stands out and was largely driven by the IPO of CSI Solar on the Shanghai STAR Market. The listing raised more than $900 million in gross proceeds and strengthened Canadian Solar’s balance sheet significantly. Since Canadian Solar still owns a majority stake in CSI Solar, the company continued benefiting from the value of the business while also receiving substantial fresh capital to fund expansion. This explains why equity growth accelerated to more than 60% that year, far above normal levels. The slower growth seen in 2024 and especially 2025 reflects weaker industry conditions. Falling solar module prices, margin pressure, and lower profitability reduced the pace at which Canadian Solar could add to shareholder equity. At the same time, the company continued investing heavily in manufacturing expansion, battery storage, and project development. Because of this, equity still increased, but at a much slower pace than in previous years. Looking ahead, I believe Canadian Solar will likely continue growing equity over time, although probably at a slower and less consistent pace than during the strongest years of the past decade. The long-term drivers remain in place. Global demand for solar power and battery storage continues to grow, and Canadian Solar has positioned itself across both manufacturing and project development. The expansion of higher margin businesses such as energy storage and recurring revenues from Recurrent Energy could also support future equity growth. However, investors should expect periods of slower progress or temporary setbacks because the solar industry remains cyclical and highly competitive. Lower module pricing, trade restrictions, or large investment periods could occasionally reduce profitability and slow the pace of equity growth. Nevertheless, Canadian Solar’s track record of growing equity through multiple industry cycles suggests that management has generally been successful in building long-term shareholder value despite operating in a challenging sector.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Canadian Solar has historically generated very weak free cash flow and negative free cash flow margins in most years. In fact, the company has reported negative free cash flow in eight out of the past ten years. These numbers are clearly underwhelming, but there are several structural reasons for why free cash flow has been so weak, and they are closely tied to the nature of Canadian Solar’s business model and the industry in which it operates. One of the biggest reasons for the weak free cash flow is that Canadian Solar operates in a highly capital intensive industry. Unlike companies that can grow with limited investment, Canadian Solar needs to spend large amounts of money to expand production capacity, improve manufacturing technology, and build out battery storage capabilities. The company manufactures solar modules, invests in energy storage systems, and develops large utility scale solar and battery projects through Recurrent Energy. These activities require substantial upfront investments in factories, machinery, equipment, land, permits, and project construction. As a result, Canadian Solar often spends more cash on expansion than it generates from its operations, which explains why free cash flow has frequently been negative. Another important reason is the cyclical and highly competitive nature of the solar industry. Solar module prices can fluctuate significantly depending on supply and demand, and periods of oversupply have repeatedly pressured margins across the industry. In recent years, intense competition and lower average selling prices for modules have reduced profitability, which in turn has lowered the amount of cash generated from the business. Even when shipment volumes increase, falling prices can significantly reduce operating cash flow. The sharp deterioration in free cash flow during 2024 and 2025 was primarily driven by heavy investment spending combined with weak market conditions. In 2025, Canadian Solar spent approximately $962 million on investments. Much of this spending was directed toward expanding manufacturing capacity in the United States, particularly the Mesquite solar module facility and the Jeffersonville, Indiana solar cell factory. Management has highlighted that total investment in the Jeffersonville solar cell project alone will exceed $1 billion. Canadian Solar is also investing in battery storage manufacturing capacity in Southeast Asia to support growing demand, particularly for the U.S. market. While these investments weigh heavily on free cash flow in the short term, they are intended to position the company for future growth and improve its ability to navigate tariffs and local manufacturing requirements. Another factor affecting free cash flow is the timing of Canadian Solar’s large projects. Through Recurrent Energy, the company develops utility scale solar parks and battery storage projects, which often require substantial spending years before they begin generating meaningful cash. Canadian Solar may spend heavily on land, permits, equipment, and construction long before a project is completed or sold. This means cash often goes out well before money comes back in. In addition, the company sometimes builds up inventories of materials and components in anticipation of changing costs or future demand. When this happens, more cash becomes tied up inside the business for a period of time, which can temporarily reduce free cash flow even if the underlying business remains stable. Looking ahead, I expect free cash flow to improve from the deeply negative levels seen in recent years, although it will likely remain volatile. A major reason is that many of the company’s large manufacturing investments are expected to mature over time. Once new facilities become operational, capital expenditures should eventually normalize, meaning less cash will be required for expansion. Management has indicated that much of the current spending is tied to specific capacity expansion projects, particularly in the United States. If these investments begin contributing meaningfully to earnings while investment spending moderates, free cash flow should improve. The growing importance of battery storage and Recurrent Energy may also support better cash generation over time. Energy storage tends to offer higher margins than traditional solar modules, while Recurrent Energy provides exposure to recurring revenues from electricity sales, long-term agreements, and project monetization. If these businesses become a larger share of overall earnings, Canadian Solar could become less dependent on the lower margin and more cyclical module business. That said, investors should probably not expect Canadian Solar to become a consistently strong free cash flow generator in the same way as asset light businesses or companies with high margins and low investment needs. The solar industry requires ongoing investments to remain competitive, and project development naturally creates periods where cash spending happens well before returns are realized. As a result, free cash flow will likely continue to fluctuate depending on industry conditions, project timing, and investment cycles. Canadian Solar primarily uses its free cash flow, or in many years external financing due to negative free cash flow, to reinvest in growth. This includes expanding manufacturing facilities, improving solar module efficiency, building battery storage capacity, and funding the development of solar and storage projects through Recurrent Energy. Unlike mature companies that return large amounts of capital to shareholders through dividends or buybacks, Canadian Solar has largely prioritized growth and strengthening its competitive position in a rapidly expanding renewable energy market. Since free cash flow has been negative in most years and the company reported a negative free cash flow yield in 2023, 2024, and 2025, we currently cannot draw any meaningful conclusions about whether the shares are trading at an attractive valuation based on this metric. Negative free cash flow makes free cash flow yield less useful as a valuation tool because the company is spending more cash than it generates. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a period of three years. Canadian Solar reported negative earnings in 2025, which means it does not make sense to use that year to calculate how long it would take the company to repay its debt. The same issue largely applies to 2024, although the situation was slightly more complicated. Canadian Solar reported earnings of $0,51 per share in 2024. However, this number is somewhat misleading because most of that “profit” came from a special accounting method rather than strong business performance. The company used something called HLBV accounting, which added $1.95 per share to reported earnings. HLBV stands for Hypothetical Liquidation at Book Value. It is an accounting method used in certain U.S. projects where Canadian Solar partners with outside investors who help fund solar projects in exchange for tax benefits. HLBV does not reflect real cash or underlying business performance. Instead, it is a theoretical calculation that asks: “If we shut everything down today and divided up the value on paper, how much would each partner receive?” That amount is then recorded as income, even though no actual money changes hands. As a result, while it may appear that Canadian Solar earned a profit in 2024, removing the HLBV adjustment shows that the company actually lost money that year. Since the company was not truly profitable in either 2024 or 2025, using those years to estimate how quickly debt can be repaid would not provide a meaningful picture. Instead, we must rely on 2023 earnings to get a more representative estimate. Based on 2023 earnings, Canadian Solar has approximately 14,8 years of earnings worth of debt. This is significantly above the three year threshold that I consider manageable and is clearly a point of concern. There are, however, a few important factors worth considering when evaluating the debt. First, not all of Canadian Solar’s debt sits directly at the parent company level. Management noted that approximately $2,2 billion of the company’s total debt at the end of 2025 was tied to specific projects within Recurrent Energy. In simple terms, this means some of the borrowing is linked to individual solar and battery projects rather than the broader company. These projects are expected to generate cash over time through electricity sales, long term contracts, or eventual asset sales. Second, Canadian Solar ended 2025 with approximately $1.9 billion in cash, providing some financial flexibility. That said, interest costs have increased as the company borrowed more to support project expansion, while higher interest rates and currency movements also pressured earnings. Given the combination of weak profitability, high investment needs, and elevated debt levels, I believe debt remains one of the bigger risks investors should monitor closely when considering Canadian Solar as an investment.

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Risks

Macroeconomic factors is a risk for Canadian Solar because the company operates in a highly capital intensive industry with long project timelines and significant financing needs. As a result, Canadian Solar is particularly sensitive to changes in interest rates, inflation, currency movements, and broader economic conditions. These factors can affect everything from customer demand and project profitability to the company’s own costs and cash flow generation. One of the biggest macroeconomic risks for Canadian Solar is higher interest rates. Solar farms and battery storage projects often require significant upfront investment and are typically financed over long periods. Because these projects generate cash gradually over many years, financing costs play an important role in determining whether a project makes economic sense. When interest rates rise, borrowing becomes more expensive, which can reduce expected returns on new projects or delay investment decisions altogether. This risk affects not only Canadian Solar itself but also its customers, many of whom rely on financing to fund large utility scale projects. If financing becomes too expensive or harder to obtain, demand for Canadian Solar’s solar modules, battery storage systems, and project development services could weaken. Canadian Solar is also exposed to inflationary pressures. Rising costs for raw materials, labor, transportation, equipment, and construction can increase the cost of manufacturing solar modules and developing projects. While the company may be able to pass some of these costs on to customers, intense competition in the solar industry can make this difficult. If Canadian Solar cannot increase prices enough to offset higher costs, profitability may come under pressure. This risk becomes especially important because the company already operates in an industry where margins can be volatile and pricing pressure is common. Broader economic weakness can also create challenges. During periods of slower economic growth, energy demand may weaken and electricity prices can come under pressure. Lower energy prices may reduce the attractiveness of investing in new renewable energy projects, particularly if competing energy sources such as natural gas or oil become cheaper. In uncertain economic environments, companies and utilities may delay or reduce investments in large infrastructure projects, which could lower demand for Canadian Solar’s products and services. Management highlighted that 2025 was another difficult year marked by persistent market headwinds, while policy uncertainty and tariff volatility also affected customer planning in parts of the storage business. Macroeconomic risks are difficult to predict and largely outside management’s control. Canadian Solar has attempted to reduce some of these risks through its global footprint, diversified project pipeline, and expansion into higher value areas such as battery storage and recurring revenues through Recurrent Energy. However, because the business depends heavily on financing conditions, customer investment activity, and large scale infrastructure spending, macroeconomic conditions will likely remain an important factor influencing Canadian Solar’s performance over time.

Global oversupply of polysilicon is a risk for Canadian Solar because it creates pricing pressure across the entire solar supply chain, which can significantly affect the company’s revenue, margins, and profitability. Polysilicon is the key raw material used to manufacture solar wafers, cells, and ultimately solar modules. Over the past several years, global production capacity for polysilicon has expanded rapidly, particularly in China, where manufacturers have aggressively increased output in anticipation of strong long term demand for solar energy. While long term demand for renewable energy remains attractive, the pace of supply growth has often exceeded demand in the short term, resulting in persistent oversupply. At first glance, lower polysilicon prices may appear beneficial because Canadian Solar can source materials at lower costs. However, the reality is more complicated. When polysilicon prices decline, prices throughout the rest of the solar supply chain usually fall as well. Manufacturers of wafers, cells, and modules are often forced to reduce prices to remain competitive. This creates a chain reaction where lower input costs are frequently offset by even lower selling prices. As a result, the savings from cheaper raw materials do not necessarily translate into stronger profitability. Instead, margins can come under pressure if the decline in selling prices happens faster than the reduction in production costs. Canadian Solar has already experienced this dynamic in recent years. The company’s average selling price for solar modules fell significantly from $0.23 per watt in 2023 to $0.16 per watt in 2024 and remained at that level in 2025. Although lower prices can support demand by making solar projects more affordable for customers, they also intensify competition among manufacturers. In an oversupplied market, companies are often forced to compete more aggressively on price to maintain shipment volumes and protect market share. This can lead to lower profitability across the industry. Persistent oversupply also increases the risk of margin compression. Even though Canadian Solar has attempted to manage this challenge by balancing production with demand and maintaining a flexible manufacturing model, the company cannot fully insulate itself from broader industry conditions. If prices continue falling, operating costs such as labor, logistics, and overhead can become a larger percentage of revenue, putting further pressure on profitability. Management has acknowledged this dynamic, noting that if solar prices continue declining, fixed operating costs may become harder to absorb, particularly in the solar manufacturing business. Another risk tied to oversupply is inventory pressure. Solar technology evolves quickly, and products can lose value if market prices fall sharply. If Canadian Solar builds inventory during periods of higher pricing and market prices later decline, the company may be forced to sell products at lower prices than expected or record lower values on inventory. This can negatively affect both earnings and cash flow. In a highly competitive market, weaker pricing may also allow lower cost competitors to become more aggressive, increasing the risk that Canadian Solar loses market share in certain regions or product categories.

The modification, reduction, elimination, or expiration of government subsidies is a risk for Canadian Solar because the solar industry has historically depended on government support to accelerate adoption and improve project economics. Although the cost of solar energy has fallen significantly over the past decade, making the industry less reliant on subsidies than before, government incentives still play an important role in determining whether many solar and battery storage projects are financially attractive. Since Canadian Solar sells solar modules, battery storage systems, and develops utility scale projects, changes in government support can directly affect demand for the company’s products and services. Governments around the world use a variety of incentives to encourage renewable energy adoption. These include tax credits, direct rebates, renewable energy mandates, feed in tariffs, government auctions, accelerated depreciation, and long term power agreements. These programs help reduce the upfront cost of solar installations and improve the financial returns for utilities, businesses, and homeowners investing in renewable energy. Because many customers base their investment decisions on expected project returns, government support often plays an important role in determining whether a solar or battery project moves forward. The United States is one of the clearest examples of this risk. Canadian Solar and many of its customers have benefited from support provided under the Inflation Reduction Act, which expanded tax credits for renewable energy projects and introduced incentives for manufacturing solar components domestically. These policies have improved the economics of solar projects while also supporting Canadian Solar’s investments in U.S. manufacturing. However, policy changes can create uncertainty. In 2025, the One Big Beautiful Bill Act shortened the time period during which certain renewable projects qualify for tax credits and introduced additional restrictions related to foreign involvement in supply chains. While Canadian Solar has taken steps to remain compliant, any reduction in available tax incentives could weaken project returns for customers, causing projects to be delayed, restructured, or cancelled altogether. This could reduce demand for Canadian Solar’s modules, storage systems, and project development services. Europe also illustrates the importance of government support. Countries such as Germany, Spain, France, and Italy continue to support renewable energy through auctions, permitting reforms, and policy incentives designed to accelerate solar deployment. These measures help create a favorable environment for project development and support demand for companies like Canadian Solar. However, energy policy can change over time. Governments may reduce incentives due to budget constraints, political shifts, or changing energy priorities. If support becomes less attractive or permitting becomes more difficult, growth in solar installations could slow, particularly in mature markets where subsidy programs have historically played an important role. Government support is especially important because solar projects are often large, expensive investments with long payback periods. Developers and utilities frequently rely on tax credits, renewable energy incentives, and supportive policies to achieve acceptable returns on investment. If these incentives are reduced or removed, projects may no longer meet required return thresholds, making developers less willing to move forward. This risk is particularly relevant in a higher interest rate environment, where financing costs are already putting pressure on project economics.

Reasons to invest

Favorable long term trends is a reason to invest in Canadian Solar because the company operates at the center of several powerful structural shifts that are expected to drive demand for electricity, renewable energy, and battery storage for decades to come. The world is becoming increasingly electrified, digitalized, and focused on reducing carbon emissions. These trends are changing how energy is produced and consumed and are creating strong demand for solar power and energy storage solutions, which are the core of Canadian Solar’s business. One of the strongest long term tailwinds for Canadian Solar is the continued growth in global electricity demand. More industries and everyday activities are becoming dependent on electricity, and this trend is expected to continue for many years. Electric vehicles, industrial automation, digital infrastructure, cloud computing, and advanced manufacturing all require growing amounts of electricity. As electricity demand rises, utilities and governments will need to add substantial new power generation capacity. Solar energy is increasingly viewed as one of the fastest, cheapest, and most scalable ways to meet this demand. Compared to alternatives such as nuclear power plants or natural gas infrastructure, solar projects can often be developed and connected to the grid much more quickly, making them an attractive solution when demand is growing rapidly. The rise of artificial intelligence and data centers is another particularly compelling trend. AI models and cloud computing require enormous amounts of energy, and electricity demand from data centers is expected to increase significantly over the coming decade. Data centers require highly reliable power and increasingly seek renewable energy and battery storage solutions to support sustainability goals and improve energy resilience. Management has highlighted this as an important opportunity, noting strong demand for storage projects linked to the rapid build out of data center infrastructure. Canadian Solar recently signed a 2.5 GWh battery storage agreement with a major U.S. utility to help support rising electricity demand from hyperscale data center investments. This demonstrates how growing digital infrastructure can directly translate into demand for Canadian Solar’s products and services. Electrification of transportation also represents a meaningful long term opportunity. As electric vehicles continue to gain market share, electricity demand is expected to rise materially. This applies not only to passenger vehicles but also to commercial transportation, industrial fleets, and charging infrastructure. More electric vehicles require more electricity generation capacity and stronger power grids. Solar energy paired with storage solutions is likely to play an important role in supplying this growing demand. Canadian Solar therefore benefits not only from higher electricity consumption but also from the infrastructure investments needed to support transportation electrification. Another important long term trend is decarbonization. Governments, utilities, and corporations around the world continue to focus on reducing carbon emissions and transitioning toward cleaner sources of energy. Renewable energy has become a strategic priority in many regions as countries seek to strengthen energy security, lower emissions, and reduce dependence on fossil fuels. Solar power is already one of the lowest cost forms of new electricity generation in many markets, and continued improvements in efficiency and storage technology are making it even more attractive. As battery technology improves and costs decline, solar energy becomes increasingly viable not only as a supplementary source of electricity but also as a larger and more reliable part of the overall energy system.

Recurrent Energy is a reason to invest in Canadian Solar because it has the potential to fundamentally improve the quality of the business over time. Historically, Canadian Solar primarily developed solar projects and sold them to third parties, generating one time revenue but giving up the long term cash flows those assets could produce. Through Recurrent Energy, the company is increasingly shifting toward a developer owner operator model, where it selectively retains ownership of solar and battery storage projects. This transition is important because it allows Canadian Solar to move beyond the highly competitive and cyclical solar module market and build a business with more stable, recurring, and potentially higher margin cash flows. One of the most attractive aspects of Recurrent Energy is the recurring revenue potential. Instead of only earning money from selling solar panels or completed projects, Canadian Solar can generate long term income from electricity sales, power purchase agreements, and energy related services. These agreements often last many years and provide more predictable revenue streams than traditional module sales, which can fluctuate depending on industry pricing and market conditions. As more projects become operational, Recurrent Energy could gradually provide Canadian Solar with a steadier earnings base and reduce some of the volatility historically associated with solar manufacturing. Another reason Recurrent Energy is attractive is its profitability profile. Project ownership and operations generally carry significantly higher margins than solar module manufacturing, which has become increasingly commoditized and exposed to pricing pressure. Management has reported gross margins of around 41% in Recurrent Energy, which is meaningfully above the company’s consolidated margin. This difference matters because one of the biggest challenges for Canadian Solar has historically been weak profitability in module manufacturing due to oversupply and falling prices. If Recurrent Energy becomes a larger share of overall earnings, it could improve the company’s financial profile over time. The segment also benefits from Canadian Solar’s experience and global reach. Recurrent Energy develops utility scale solar and battery storage projects across North America, Europe, Latin America, Japan, and Australia. Building these projects requires expertise in land acquisition, permitting, grid interconnection, engineering, financing, and construction. These capabilities take years to develop and can create barriers to entry for smaller competitors. Canadian Solar’s vertically integrated model may also provide an advantage because Recurrent Energy can source solar modules and storage systems from the broader Canadian Solar platform, helping optimize project economics and execution. The partnership with BlackRock provides further validation of Recurrent Energy’s potential. In 2024, BlackRock invested $500 million for a 20% stake in the business, signaling confidence from one of the world’s largest institutional investors. Beyond the capital injection, the investment provides Canadian Solar with greater flexibility to retain and operate more projects rather than selling them immediately to recycle cash. This supports the company’s strategy of building a larger portfolio of operating assets capable of generating recurring cash flow over time.

Energy storage is a reason to invest in Canadian Solar because it represents one of the company’s most attractive long term growth opportunities and has the potential to improve both profitability and business quality over time. While Canadian Solar is best known for manufacturing solar modules, the company has increasingly expanded into battery energy storage through its e-STORAGE division. This business gives Canadian Solar exposure to a rapidly growing market that plays a critical role in the transition toward renewable energy. Importantly, energy storage tends to generate higher margins than traditional solar module manufacturing and may help reduce the company’s reliance on the highly competitive and cyclical solar panel market. One of the biggest reasons energy storage is attractive is that it solves one of solar energy’s main limitations. Solar power is intermittent, meaning electricity is only generated when the sun is shining. Battery storage helps solve this challenge by storing electricity during periods of strong generation and releasing it later when demand increases or renewable production falls. This improves grid stability and makes solar power more reliable and flexible. As more renewable energy is added to electricity grids around the world, storage is increasingly becoming essential rather than optional. Management has repeatedly emphasized that storage plays an important role in improving the reliability, dispatchability, and resilience of renewable energy systems. The market opportunity for energy storage appears substantial. As electricity demand continues to rise due to artificial intelligence, data centers, electrification, and renewable energy adoption, utilities and businesses increasingly require storage solutions to balance power supply and demand. Canadian Solar believes the global battery storage market could exceed one terawatt hour of cumulative capacity by 2030, creating a large opportunity for companies with competitive solutions. The company has already begun benefiting from this trend. In 2025, Canadian Solar delivered a record 7,8 GWh of energy storage shipments globally, representing growth of 19% year over year. Over the past three years, the company has approximately tripled sales in the storage business, demonstrating strong momentum. Another important reason energy storage is attractive is that it tends to be a higher margin business than solar modules. Solar manufacturing is often exposed to intense pricing pressure and commoditization, whereas battery storage solutions are generally more differentiated and service oriented. Management has highlighted that every e-STORAGE project completed to date has contributed positively to profitability and that the company targets gross margins of around 20% or higher for the battery storage business. This is meaningfully stronger than the margins typically earned in solar modules. In recent years, Canadian Solar has also prioritized storage as part of its effort to diversify profit drivers and improve overall profitability. Canadian Solar’s technology and integrated offering may also provide an advantage. Through its proprietary SolBank platform, the company offers utility scale battery storage systems designed with advanced safety features, cooling systems, and customizable configurations tailored to customer needs. Beyond simply selling batteries, Canadian Solar increasingly offers complete turnkey solutions that combine solar generation, storage, installation, grid integration, and long term service agreements. This bundled approach can deepen customer relationships and create additional revenue opportunities over time. As customers increasingly seek dependable, around the clock clean energy solutions, Canadian Solar’s ability to provide both solar and storage may strengthen its competitive position. The growing backlog further supports the investment case. As of early 2026, Canadian Solar reported a record energy storage backlog of approximately $3,6 billion, including long term service agreements covering 29 GWh of projects. This backlog provides visibility into future demand and demonstrates that utilities and developers are increasingly committing to Canadian Solar’s storage solutions. The company also maintains a strong presence in major markets such as the United States, Canada, and the United Kingdom while expanding into newer markets such as Australia and Latin America.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 3,87, which is from the year 2023. I have selected a projected future EPS growth rate of 9%. Finbox expects EPS to grow by 9,2% in the next five years. Additionally, I have selected a projected future P/E ratio of 18, which is double the growth rate. This decision is based on Canadian Solar's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $40,76 We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Canadian Solar at a price of $20,38 (or lower, obviously) if we use the Margin of Safety price. Keep in mind that the calculations are based on the 2023 numbers, as the 2024 numbers were distorted by the HLBV adjustment mentioned earlier, while the 2025 numbers were negative.

The second calculation is known as the Ten Cap price. This represents the return on investment a company owner (or stockholder) would receive based on the purchase price of the business. The goal is a minimum annual return of 10%. Since operating cash flow was negative in 2024 and 2025, we cannot run the calculation for those years. However, based on the 2023 numbers, the Ten Cap price would have been $4,84.

The final calculation is known as the Payback Time price. It is based on free cash flow per share. However, since Canadian Solar reported negative free cash flow in both 2023, 2024 and 2025, I am unable to make this calculation.

Conclusion

I believe that Canadian Solar is an intriguing company with strong management. The company has built its moat through its scale, cost efficiency, vertical integration, global reach, brand recognition, and dual business model spanning both manufacturing and project development. ROIC has been underwhelming throughout most of the company’s history due to the capital intensive and highly competitive nature of the solar industry. While returns may improve as higher margin segments such as energy storage and Recurrent Energy become a larger part of the business, I do not expect Canadian Solar to consistently generate ROIC above 10%. Free cash flow has also been negative in most years, reflecting heavy investments in manufacturing capacity, battery storage, and project development. Although free cash flow is expected to improve over time as more projects become operational and higher margin businesses grow, it will likely remain volatile and may still be negative in certain years. Macroeconomic factors represent a meaningful risk because Canadian Solar depends heavily on financing and long term project investments. Higher interest rates, inflation, and weaker economic conditions can increase costs, reduce project profitability, and weaken demand for solar and battery storage projects, all of which may pressure revenue, margins, and cash flow. Global oversupply of polysilicon is another risk because it creates pricing pressure across the solar supply chain, forcing manufacturers to lower prices on wafers, cells, and modules to remain competitive. While lower input costs may provide some benefit, selling prices often decline even faster, putting pressure on profitability and increasing competitive intensity. Changes to government subsidies and incentives also represent a risk, as many solar and battery storage projects still rely on tax credits and supportive energy policies to achieve attractive returns. If governments reduce or remove these incentives, project economics may weaken, causing delays or cancellations and reducing demand for Canadian Solar’s products and services. On the other hand, several long term trends support the investment case. Rising global electricity demand driven by electrification, artificial intelligence, data centers, and decarbonization is expected to increase demand for both solar power and battery storage, areas where Canadian Solar is well positioned. Recurrent Energy is particularly interesting because it is helping transform Canadian Solar from a cyclical solar module manufacturer into a business with more stable, recurring, and potentially higher margin cash flows through project ownership and electricity sales. By retaining selected solar and battery storage projects, the company can generate recurring revenue while benefiting from stronger margins, and BlackRock’s investment further validates the long term potential of the segment. Energy storage is another compelling reason to invest, as it represents a fast growing and higher margin business that can improve both profitability and the overall quality of the company over time. Through its e-STORAGE division, Canadian Solar is benefiting from growing demand for battery systems that improve the reliability of renewable energy, while its growing backlog, shipment growth, and integrated solar plus storage solutions support long term growth potential. While there are many things to like about Canadian Solar, I am personally not interested in investing in the sector. Therefore, I will not be buying shares in Canadian Solar at this time.

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