FSLR is seeing some pricing competition in one of its best markets, Germany. The company said that there has been some recent aggressive pricing from silicon based solar manufacturers. Falling prices in silicon based modules could be problematic for First Solar, because its cadmium telluride version of photovoltaic panels are not as efficient as the silicon panels that competitors manufacture. The low cost of the First Solar panels have been the key to their constant sales over the last few years.
Germany and Spain are the dominant buyers of solar photovoltaic panels in Europe. First Solar's CEO Mike Ahern recently warned of pending price cuts for FSLR panels sold into Germany. He said the company is "willing to reduce price" concerning the German market. The method would most likely use rebates, where First Solar would be issuing rebates that could be claimed after projects were completed.
The situation at First solar is not whether they can stay in the German market, rather can the company continue to operate with such a steady profit? Cadmium telluride has been a very profitable (and most exclusive) niche for First Solar. The ability to provide a product that lags a little in efficiency but makes up for it with low cost is now in doubt. How aggressive will thin wafer silicon providers get?
The stock price had been on a slow slide which started May 20th, when it was trading at $202. That slide lasted until July 14th, when the stock reached $141. There was another quick rally through the rest of July that brought FSLR to $173 on July 30th. And that's when the news about the competition was released. As of August 5th, FSLR was trading roughly around $149.
Despite the fact that First Solar had great earnings in their most recent quarter, the investing community is more interested in how they will fair in the next quarter and next year. Right now the look is somewhat difficult. Large infusions of financing and government contracts for green projects will continue to help the company, but at the same time it will provide them grief. The glut of solar panels that has been produced and the further production that will be coming online (especially out of China) will continue to grow rapidly through the rest of the year.
So although FSLR will be winning contracts and have plenty of business, the question is how profitable can they remain? If pricing becomes too much of an issue in Germany, then why not Spain? Or the United States? There is no threat to the company's ability to survive and to make money, but with a substantial stock price of $149 the market is making a statement, which is that First Solar will continue to make very high profits. The new pricing model materializing in 2010 may only provide modest profits. And that's the danger for a stock with a $149 price tag.
