Solar's Price Advantages Are For Everyone

Only one year in the past, First Solar Inc. (NASDAQ:FSLR) was sitting high on the index due to the menacing idea that solar tariffs that would affect competitors but leave the prices of solar panel systems (both domestically and internationally produced) in safe harbor. In the first part of 2018, the doubts of its rivals were actualized when President Trump executed tariffs on solar cell and panel imports that began with a 30% duty in 2018. First Solar was ready to take the good from the bad, booking years of production at raised prices, and expanding its manufacturing capability around the globe. 

However as 2018 has proceeded, the company's lead has dwindled. China cut its solar incentives, which caused installations in the world's largest solar market to contract by 30% this year. That drop in the request is resulting in falling costs for commodity solar panels, which First Solar's panels compete directly next. Any benefit it could increase from the U.S. tariffs may be washed away by those declining solar panel costs. 

Competition is getting fierce

First Solar plays against other solar panel manufacturers based almost entirely on price, so it matters immensely how much their solar panels cost. Panel costs depend on factors like supply contracts, country of origin, and technology, but broadly, expenses are defined by supply and demand, and we can get a broad idea of costs from industry estimates. 

From the mouth of Bloomberg New Energy Finance (BNEF), we have heard the standard solar panel cost $0.37 per watt at the finish of 2017. If we believe international prices didn't change when tariffs were implemented early in 2018, the net cost First Solar was competing against in the U.S. was $0.48 per watt following tariffs (which was priced in for future contracts throughout 2017). Since tariffs didn't direct first Solar's products, this $0.48 per watt figure is what the company had to beat to conquer supply contracts in the U.S., where most of its new interest has developed from in the past year. 

Tariff Timeline On Net Solar Panel Price

Q4 2017 (before tariffs) $0.37 per watt  n/a  $0.37 per watt
Q4 2017 (after tariffs)  $0.37 per watt  $0.11 per watt  $0.48 per watt
Predicted 2018 with tariffs $0.24 per watt   $0.07 per watt $0.31 per watt

When demand collapsed in mid-2018, solar panel costs went with it. BNEF predicts that by the end of 2018 commodity solar panel prices will descend to $0.24 per watt. Even after a 30% tariff, that's $0.31 per watt in the U.S.

First Solar doesn't deliver its price per watt or sale price for its panels, but it's struggling with these commodity costs, and we know that as of late 2017 management expected new panel sales contracts to produce a gross margin of over 20%. With commodity solar panel prices down 16% since then in the U.S., even the following accounting for tariffs, we could see meaningful margin pressure on future solar panel purchases. 

It's no accident that First Solar's bookings jumped in the second quarter of 2018, given pricing trends. And if we don't see a significant increase in demand and costs for commodity solar panels in the next few quarters, First Solar could face some serious stress on margins and profitability. Regrettably, falling margins and profitability will probably be a familiar tale in solar over the next year. 

Solar Prices Stumbling

Solar no longer has the wind at its stern, and that's starting to put stress on its share price. The stock is falling by more than 30% from its 52-week high, and if this competitive environment persists, that slide could continue. Even in the U.S., where tariffs are in position, First Solar may no longer have a contentious advantage. What we don't know yet is whether or not this is a low point in the cycle or if competing for commodity solar panels will continue decreasing prices. If they do, First Solar's industry-leading profitability could contract very quickly as it works through backlog booked at high rates over the last year and a half.

Just make sure, and promise us here at HahaSmart you will have a look at what we can offer you on the cost of solar panels and cost of solar installations. We will strive to find you the best prices available. Follow the solar experts. Try our price checker tool. It tells you how much solar power you need and how much you can save on your energy bills each month.

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