First Solar – A Company with a Competitive Advantage in a Booming Industry
Nov 11, 2019 by InvestorDestination Team
While First Solar (NASDAQ: FSLR) emphasizes its ability to book long-term sales, investors are concerned about price fluctuations.
In the seventies, the demand for solar got ignited by the steep hike in oil prices. However, this time around, the demand for solar is growing due to the need for clean energy, and governments’ commitment to reducing the carbon footprint. The solar industry is innovating and lowering the cost. So, solar energy is becoming more affordable. In the last decade, the cost of solar has dropped more than 70%, and solar installation in the US has experienced an average annual growth rate of 50%. However, only 2% of the total energy generated in the US is by solar. There is a long growth ahead for solar.
As the industry is growing, competition has intensified. Solar has become a highly competitive and cyclical industry. Many Chinese competitors expanded aggressively, and during downturns, some of them ended up in bankruptcy. First Solar‘s management is focused on profitable growth. It has taken a disciplined approach and is successfully navigating through industry cyclicality. The company’s recent decision to exit the EPC business attests to its commitment to profitable growth. It generates strong cash flow and has the best balance sheet in the industry.
First Solar is benefiting from import tariffs on solar modules produced outside the US. Its thin-film solar panels are exempted from solar tariffs, even if they are manufactured overseas. The current administration’s recent decision to end the exemption for bifacial solar is the icing on the cake for First Solar. Utility-scale solar developers would see bifacial solar panel imports as the best competitor to its solar panels, so the elimination of this competition will be a win for the company.
Tariffs can protect First Solar from low price solar providers flooding the market only until January 2022. After tariffs got imposed, some of the Chinese competitors such as Jinko Solar started producing modules in the US.
In the long run, companies cannot survive without a competitive advantage. However, First Solar does not have that problem. It is innovating, slowly, and steadily improving efficiency and reducing the cost of its solar panels. Its most recent Series 6 solar panels, which are larger and costs 40 percent less to manufacture compared to the previous model, should keep the company competitive for years to come.
If you are looking for a company with a competitive advantage in a growing industry, then you need to consider this company.
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