First Solar Inc. (NASDAQ:FSLR), the leading thin-film solar panel manufacturer, headquartered in Tempe, Arizona, was once a coveted crown jewel stock to possess in one’s portfolio but now has become a hot potato along with others in the solar industry. This stock traded at approximately $311 per share during its peak in May 2008 but has fallen about 87 percent since that period, as it closed at a paltry $39.21 today- down over 6 percent. FLSR has undergone some of the sharpest losses of all stocks traded on the NASDAQ in recent weeks. Last Friday alone, the stock dropped 10 percent and was downgraded from “Buy” to “Neutral” by a series of analysts over the last several days.
Although the solar panel producer and installer has benefitted from the overall upturn of the US stock market in 2012, First Solar has struggled over the last 12 months as its market value slides. One year ago, First Solar shares were worth as much as $170 but a plethora of negative circumstances surrounding its major projects and the overall glut of solar panels across the industry, driving down net prices, have generated financial problems for the company.
Recent concerns deal with the company’s large-scale exposure to Europe, which is now undergoing a major economic slowdown, as government’s cut solar subsidies including steeper-than-expected reductions in Germany’s feed-in-tariff program. Over the last year, Spain has approved similar measures regarding discontinuing renewable energy subsidies. Germany and Spain have been by far the top two countries in Europe with respect to solar installations over the last decade.
Also, the company sat primarily on the sidelines during the US solar trade dispute with China over the dumping of crystalline silicon solar panels on the market below production costs, which subsequently drove down FSLR thin-film solar panel selling prices as well. The overall turbulence of the market and instability within the company led to frequent reshuffling of top-level executive management, since its stock price peaked in 2008, including the change of its CEO in October.
Moreover, financing has been a stumbling block for First Solar, especially over the last year, as it struggles to remain competitive in the US. Loans are often guaranteed only if certain conditions are met related to government permits. Last week, the company filed a statement with the SEC declaring that it would have to re-purchase the Antelope Valley Solar Ranch contract, based in northern Los Angeles County, it sold to Exelon Corporation late last year if the project is unable to secure a $646 million U.S. Department of Energy loan reliant upon construction permits. President Obama announced in his State of the Union address an initiative to help accelerate renewable energy project permitting to lessen this occurrence.
The combined effect of these circumstances and First Solar’s murky forecast for 2012 recently led to its plan to scale-back global production to 80 percent capacity this year. As a result, it eliminated future expansion plans in Vietnam, while putting the construction of its Mesa, Arizona full-scale manufacturing plant on hold indefinitely. Thus, Arizona still lacks any complete manufacturing line for the fabrication of solar panels from start-to-finish, even though it touts itself as a solar titan. This reputation is mainly based on its tremendous potential for solar power generation, which it has not fully capitalized on, even compared to states with significantly less sun exposure.
What’s more, First Solar has announced new plans this week to reduce production at its plant in Germany. In a climate of job losses, First Solar has applied for government assistance to place its 1,200 employees on a part-time contract rather than execute mass layoffs. The thin-film manufacturer intends to cut output in half for six months.
This is obviously not a good sign for solar manufacturing companies, especially ones trying to break into the market with lower cost alternatives to conventional silicon solar panels. If a heavyweight of the industry has undergone so much pressure in recent years, it does not paint a bright picture for newcomers with a similar business model and analogous product offering. In addition, if a Republican candidate is elected president in the US in 2012, it will likely turn the tide against solar and renewable energy as a whole, highly reliant on government policy, which will negatively impact the market even more, already plagued by financing and pricing problems.
The flip side of the especially difficult economic climate for the utility-scale solar industry is- as solar panel prices continue to erode, it has fueled momentum and significant growth for small-scale solar projects and distributed power generation that is less capital-intensive. However, First Solar has not emphasized that segment of the market, adding to their woes.
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