First Solar: A different solar panel company.

First Solar is a leading U.S.-based solar technology company that manufactures advanced solar panels for large-scale energy projects. Unlike most of its competitors, it uses a unique technology and manufacturing process that sets it apart in the industry. As clean energy demand rises and government policies increasingly favor domestic production, First Solar is expanding rapidly to meet future needs. The question is: Does this solar leader deserve a place 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 First 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 First 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

First Solar, Inc. is a U.S.-based solar technology company founded in 1999 that specializes in the design and manufacture of thin-film photovoltaic modules using cadmium telluride (CdTe) technology. Headquartered in Tempe, Arizona, it serves utility-scale and large commercial solar developers and is the largest solar panel manufacturer in the Western Hemisphere. While its core operations are in the United States, the company also runs manufacturing facilities in Malaysia, Vietnam, and India. Unlike most major solar manufacturers that rely on crystalline silicon, First Solar uses a proprietary CdTe-based process. This thin-film technology performs better than silicon in hot, humid, or partially shaded conditions and requires less raw material and water. Although thin-film currently makes up only a small share of the global solar market, First Solar dominates this niche. Beyond technical advantages, the company also has a significantly lower environmental footprint than many of its peers and operates a long-standing recycling program that recovers over 90 percent of materials from decommissioned modules. First Solar’s competitive moat rests on several factors. Its CdTe technology is not only more resilient in extreme climates, but it also avoids reliance on the polysilicon supply chain, which is largely concentrated in China. This has become a strategic advantage as developers seek to diversify sourcing and comply with evolving trade policies. The company’s vertically integrated manufacturing model supports both cost efficiency and product quality. With more than 75 gigawatts of modules sold, First Solar has demonstrated its ability to scale while continuing to reduce costs. With over $2 billion invested in research and development, the company is also among the most innovation-driven in the industry. Its acquisition of Evolar AB and investment in tandem cell and perovskite technologies point to continued improvements in module efficiency. Taken together, First Solar’s differentiated technology, manufacturing scale, and environmental leadership give it a durable and defensible competitive position.

Management

Mark Widmar serves as the CEO of First Solar, a position he has held since 2016 after joining the company in 2011 as Chief Financial Officer. Prior to First Solar, Mark Widmar served as the CFO of GrafTech International Ltd., a global manufacturer of advanced carbon and graphite materials. He also held senior financial roles at major companies including NCR, where he served as Corporate Controller and Business Unit CFO, as well as Dell, Inc., where he worked as a Division Controller. Earlier in his career, Mark Widmar held financial and managerial positions at Lucent Technologies, Allied Signal, and Bristol-Myers Squibb. He began his career in 1987 as an accountant at Ernst & Young. Mark Widmar holds a Bachelor of Science in Business Accounting and an MBA from Indiana University. While relatively low profile in the media, Mark Widmar has offered valuable insights through earnings calls and letters to shareholders. He is highly focused on maintaining cost competitiveness, recognizing that price remains one of the primary reasons developers choose crystalline silicon panels over alternatives. His leadership has emphasized efficiency and discipline - one example of this focus was the decision to divest the company’s North American operations and maintenance business, a move that reflected a sharpened commitment to core competencies in manufacturing and module innovation. Mark Widmar has also been outspoken about ethical concerns surrounding the global polysilicon supply chain, particularly the alleged use of forced labor. He has positioned First Solar’s vertically integrated CdTe manufacturing process as not only a technical differentiator but also a transparent and ethical alternative to silicon-based production. This alignment of business strategy with supply chain integrity reinforces First Solar’s value proposition, particularly in markets increasingly concerned with traceability and responsible sourcing. I believe Mark Widmar is the right person to lead First Solar through the next phase of its growth. His strong financial background, commitment to operational excellence, and focus on ethical manufacturing practices align closely with the company’s strengths and long-term goals.

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. The numbers are underwhelming, as First Solar has only delivered a ROIC above 10% twice in the last 10 years, and one year even showed a negative ROIC. That said, it’s encouraging that the two years with ROIC above 10% were the most recent ones - 2023 and 2024 - suggesting a positive trend. One of the main reasons for this improvement is a shift in the company’s sales mix. A larger share of its solar module sales now qualify for tax credits, which are designed to support domestic clean energy manufacturing. These incentives have boosted First Solar’s profit margins. While the credits are currently in place, their long-term continuation will depend on future policy decisions, introducing some uncertainty. Another factor behind the higher ROIC is the receipt of termination payments from customers who backed out of their contracts. These payments, coming from various regions including the U.S., India, and Europe, temporarily increased the company’s pretax income, which is a key part of the ROIC calculation. On a more stable note, First Solar’s efforts to expand its production capacity have contributed meaningfully to the improvement in ROIC. Producing and selling more solar modules has helped the company better absorb its fixed costs and improve efficiency, which positively impacts ROIC. In summary, it’s a good sign that ROIC has improved over the past two years. While the expansion of manufacturing capacity should continue to support returns moving forward, the longer-term outlook will depend on whether the company can maintain its current level of tax benefits.

The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. First Solar maintained relatively stable equity from 2014 to 2022, with a mix of modest increases and occasional declines. In 2023, however, the company delivered its highest equity level in a decade—along with its strongest year-over-year growth. That performance was surpassed again in 2024, with both total equity and annual growth reaching new highs, which is very encouraging. This improvement can be attributed to a combination of stronger operational efficiency, rising demand for solar modules, and the company’s ongoing expansion of its manufacturing capacity. Management has expressed a long-term vision for continued growth, supported by plans to increase production and tap into both domestic and international markets. This strategic direction should help sustain equity growth going forward.

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. First Solar has only reported positive free cash flow once in the past decade, which might seem discouraging at first. However, there are some important reasons behind this pattern. One of the main factors is the company’s high level of capital spending. First Solar has invested heavily in expanding its manufacturing capacity and upgrading its operations. These investments have often been larger than the cash coming in, especially during periods of rapid growth. In addition to these expansion efforts, the company has faced some operational challenges - particularly with its Series 7 modules - as well as rising costs for raw materials. These factors have put further pressure on cash flow. That said, First Solar has still managed to generate solid operating cash flow in recent years, which means the business is bringing in money from its core operations even if the overall free cash flow is negative. In other words, the situation isn’t as bad as it might first appear. While the company may not turn free cash flow positive immediately, it is actively working to make its operations more efficient and scale up production to meet rising demand for solar energy. These steps should gradually improve its free cash flow position over time.

Debt

Another important aspect to investigate is the level of debt—specifically, whether a business has manageable debt that can be paid off within a period of three years. We assess this by dividing the total long-term debt by earnings. After reviewing First Solar’s financials, I found that the company currently has no debt. In fact, First Solar has historically carried little to no debt, which suggests that debt is unlikely to be a concern going forward.

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Risks

Global oversupply is a risk for First Solar. The continued expansion of Chinese solar manufacturing, supported by government subsidies and aggressive pricing strategies, has led to a significant drop in global solar cell and module prices. First Solar’s management has pointed out that these dumping practices distort market dynamics and threaten the viability of solar manufacturers outside of China. Unlike typical supply and demand imbalances, this oversupply is strategically driven and cannot be addressed through innovation, cost control, or market forces alone. The effects are already visible across the industry. In Europe, Meyer Burger recently announced plans to shut down module assembly in Germany due to worsening market conditions. In India, a sharp decline in cell pricing in segments not protected by domestic content rules has weakened efforts to limit the influence of Chinese imports. Meanwhile, in the U.S., record levels of imports from Southeast Asia continue to pose a challenge to the development of a strong, self-sustaining domestic solar supply chain. For First Solar, this global oversupply creates downward pressure on pricing and threatens to erode its margins, particularly for modules produced outside the U.S. that are sold into international markets. The oversaturation of low-cost Chinese products can make it difficult for customers to justify paying a premium for First Solar’s differentiated technology, especially in markets where trade protections are weak or non-existent. Management has emphasized that the threat is structural and calls for policy-level intervention. In particular, First Solar supports legislation to classify Chinese-backed entities as Foreign Entities of Concern (FEOCs), which would disqualify them from receiving U.S. clean energy subsidies. This would help prevent Chinese companies from setting up low-value U.S. assembly shops simply to access American tax credits, while ensuring that incentives like the 45X manufacturing credit support true domestic value creation. In short, global oversupply - driven by China’s strategy of overproduction and market domination - poses a serious risk to First Solar’s competitiveness, especially outside the U.S.

The new U.S. administration introduces a meaningful risk for First Solar due to heightened uncertainty surrounding clean energy policy—particularly the future of the Inflation Reduction Act (IRA), which has played a central role in supporting the company’s growth. Passed in 2022, the IRA provides substantial tax incentives for solar manufacturers, project developers, and system owners, helping to drive a surge in domestic clean energy investment. These provisions have directly benefited First Solar, contributing to a sharp increase in gross margins - from 5% in 2022 to 44% in 2024 - and potentially boosting annual earnings per share by several dollars, according to analyst estimates. However, the current political environment brings ambiguity to the continued implementation of the IRA. Since taking office, the Trump administration has paused or begun reviewing parts of the legislation and issued executive orders aimed at reversing Biden-era climate policies. Although some of these actions are being challenged in court, the broader effect has been to introduce caution across the clean energy market. First Solar has already seen this reflected in customer behavior, with slower bookings, delayed procurement decisions, and requests to postpone delivery schedules - all signs that buyers are waiting for greater policy certainty before committing to new projects. Adding to the uncertainty is the lack of clear guidance on how projects will qualify for the IRA’s domestic content requirements. Without clarity, both developers and manufacturers are finding it difficult to calculate the financial impact of potential incentives. This confusion further contributes to project delays and customer hesitation.

Macroeconomic conditions—especially interest rates—represent a meaningful risk for First Solar due to the capital-intensive nature of the solar industry. Unlike many other sectors, solar projects require substantial upfront investment, with returns generated slowly over time, often spanning 20 years or more. Because of this structure, most utility-scale solar developments rely heavily on financing, typically through a combination of debt and equity. When interest rates rise, borrowing becomes more expensive. This directly increases the cost of financing new solar projects, which can make them less attractive to investors and developers. Higher rates also reduce the present value of future cash flows, meaning the long-term returns from a solar installation become less compelling compared to other investment opportunities. In practical terms, this can delay, downsize, or even cancel projects altogether - especially in cases where developers can no longer secure favorable loan terms. These pressures can have direct consequences for First Solar, whose core customers include utilities, independent power producers, and project developers. If those customers struggle to access affordable financing, it could reduce the number of new projects being built and therefore decrease demand for First Solar’s solar modules. In 2024, this dynamic became visible when First Solar reported over 1,8 gigawatts of customer contract terminations for default - some of which were likely tied to financing or project development delays. In summary, higher interest rates can lead to fewer financed projects, lower demand for solar modules, and increased uncertainty around customer purchasing behavior.

Reasons to invest

Favorable long-term trends in energy demand and electrification present a strong tailwind for First Solar. As the global economy shifts toward greater electrification, demand for clean, reliable, and scalable energy sources is accelerating. From electric vehicles to data centers and AI infrastructure, a growing number of industries are increasing their electricity consumption - often at exponential rates. Importantly, many of these applications require power 24/7 and at a massive scale, making a diversified energy mix essential. Within that mix, solar is expected to play a leading role. Solar energy stands out for its relatively low cost, rapid deployment, and scalability. Compared to alternatives like nuclear or natural gas, solar projects can be brought online faster and with fewer supply chain or permitting hurdles. As costs continue to decline and energy storage technologies improve, solar becomes increasingly viable as both a primary energy source and a key enabler of decarbonization. Management at First Solar has emphasized this shift, noting the growing importance of solar in meeting long-term energy needs. The surge in power demand from sectors like cloud computing, AI, electric vehicles, and cryptocurrency mining creates a substantial market opportunity. For example, data centers alone are expected to triple their share of U.S. electricity consumption - from 2,5% in 2022 to 7,5% by 2030, according to Boston Consulting Group. Light-duty electric vehicles, meanwhile, are projected to consume more than 30 times as much electricity by the end of the decade. Critically, electrification can only drive decarbonization if it is paired with a dramatic expansion of renewable energy sources. Solar power, already one of the fastest-growing forms of clean energy, is ideally positioned to meet this demand. According to the International Energy Agency, advancements in solar technology - alongside falling costs and improved energy storage - are making solar competitive with, or cheaper than, traditional sources in many markets.

First Solar’s specialization in thin-film solar technology is a core reason to consider investing in the company. While the solar industry is crowded with crystalline silicon manufacturers, First Solar has carved out a unique and defensible position as the global leader in thin-film photovoltaic modules. This strategic focus not only sets its products apart but also positions the company to lead the next generation of solar innovation. Thin-film technology offers several built-in advantages over conventional silicon-based panels. It is less reliant on polysilicon, which is often subject to price volatility and geopolitical risk, and it performs better in real-world conditions such as high heat, humidity, and partial shading. First Solar’s cadmium telluride (CadTel) modules also have a lower carbon and water footprint and are produced through a vertically integrated manufacturing process that improves cost control and supply chain visibility. What makes First Solar especially compelling is not just the technology it uses today, but its long-term plan to continue pushing the boundaries. The company is focused on three key areas. First, it's improving its current CadTel panels to make them even more efficient. Second, it’s investing in a promising new material called perovskite, which could lead to cheaper, higher-performance solar panels. Third, it’s developing next-generation “tandem” panels that stack two materials together to capture more sunlight and generate more energy. Beyond technology, First Solar also benefits from avoiding the legal turmoil affecting many of its competitors. Several major players in the silicon-based solar market are engaged in ongoing patent disputes, creating uncertainty across the industry. First Solar sidesteps much of this because it relies on its own proprietary technology, which has fewer direct competitors and less exposure to litigation. Additionally, it holds valuable patents related to another type of solar technology called TOPCon. The company has begun enforcing these patents and licensing them to other firms, adding a new revenue stream and reinforcing the strength and stability of its position in the market.

First Solar’s expanding manufacturing capacity is a strong reason to invest in the company. In an industry where demand is rising and policy tailwinds continue to support domestic clean energy, First Solar is aggressively scaling up to meet future growth—while maintaining a disciplined, long-term strategy. In 2024, the company produced 15,5 gigawatts of solar modules and ended the year with 21 gigawatts of nameplate manufacturing capacity, up more than 4 gigawatts from the prior year. This growth was driven by the ramp-up of its new facility in Alabama and production optimization in Ohio. Looking ahead, First Solar is constructing a $1,1 billion factory in Louisiana, expected to begin operations in the second half of 2025. Once fully ramped, this new capacity will bring total global nameplate manufacturing to more than 25 gigawatts by 2026. This rapid expansion is not speculative - it is backed by demand. First Solar exited 2024 with a contracted backlog of 68,5 gigawatts, representing approximately $20,5 billion in future revenue. In fact, the company is currently oversold through 2026, meaning it has committed more product than it can currently manufacture—an intentional strategy that gives it flexibility in managing customer timelines and production ramp-ups. All of this points to a clear theme: First Solar isn’t just building capacity - it is doing so with visibility, discipline, and demand already in hand. The company’s scale-up supports revenue growth, operational efficiency, and stronger pricing power, particularly in the U.S. market where policy incentives reward domestic manufacturing. In a sector where many companies struggle with margin pressure and demand uncertainty, First Solar’s fully integrated, backlog-driven growth strategy provides investors with rare clarity and resilience.

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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 12,02, which is from the year 2024. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 18% in the next five years, but 15% is the highest number I use. Additionally, I have selected a projected future P/E ratio of 30, which is double the growth rate. This decision is based on First 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 $360,60. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy First Solar at a price of $180,13 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 1.218, and capital expenditures were 1.526. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 1.068 in our calculations. The tax provision was 114. We have 107,1 outstanding shares. Hence, the calculation will be as follows: (1.218 – 1.068 + 114) / 107,1 x 10 = $24,65 in Ten Cap price.

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. However, as First Solar had a negative free cash flow in 2024, I am unable to make this calculation.

Conclusion

I believe First Solar is an interesting company with strong management. It has a moat through its CdTe technology and vertically integrated manufacturing model. While the company has historically delivered a low ROIC, the metric has improved in the past two years - though there are questions about how sustainable that improvement is. First Solar has only generated positive free cash flow once in the past decade, largely due to high capital expenditures. Still, I would like to see the company become free cash flow positive in the future. Global oversupply is a risk for First Solar, as subsidized overproduction from Chinese manufacturers is pushing down global solar prices, making it harder for the company to compete - especially in international markets where trade protections are limited. The new U.S. administration also poses a risk due to uncertainty around the future of the Inflation Reduction Act, which has caused hesitation in the clean energy market and contributed to slower bookings and project delays. Additionally, macroeconomic conditions - particularly high interest rates—make it more expensive for customers to finance solar projects, potentially leading to further delays, cancellations, or reduced demand. On the positive side, favorable global trends such as rising electricity demand from data centers, electric vehicles, and AI are creating long-term opportunities for solar energy. As one of the fastest-growing and most scalable clean energy sources, solar is well-positioned to meet this need. First Solar stands out by using thin-film technology rather than traditional silicon, offering better performance in certain conditions and fewer supply chain risks. Its continued focus on innovation supports its long-term growth potential. The company’s expanding manufacturing capacity also positions it to scale efficiently and meet rising demand. Backed by a large contracted backlog, this disciplined buildout provides strong visibility into future revenue. While there are many things to like about First Solar, I will not be investing at this time, as I believe there are currently too many uncertainties surrounding the company.

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