FSLR slammed
President Obama in his speeches has repeatedly conjured up the vision of thousands of jobs created in the solar industry. Obama has been focused on providing subsidies to solar power in a manner that does not seem to work and at the same time Republicans have been more focused on fighting Obama than helping the green energy industry in America.
While Obama and Republicans engage in a kindergarten style brawl, China is slaughtering the American solar industry.
Take a look at First Solar (FSLR) chart from this afternoon during which, First Solar lost 25% of its already depressed market value in a matter of two hours.
The immediate news is that Rob Gillette, CEO of the company has been
replaced by the chairman, Mike Ahern, on an interim basis. First Solar
did not provide any details but the handwriting was on the wall.
Recently, there has been considerable anecdotal evidence that First Solar is no longer competitive with Chinese imports. As a result, First Solar facilities are being underutilized and large scale layoffs may loom.
It was not that long ago that First Solar was considered the beacon of American innovation. First Solar was the second largest manufacturer of solar cells in the world in 2010. In 2011, the company ranked first on Forbes’ list of America’s 25 fastest growing companies.
First Solar has been a leader in thin film photovoltaic modules using cadmium telluride. In the past, these modules have been less expensive to manufacture than the traditional modules manufactured from crystalline silicone. The company scored a first when it lowered its manufacturing costs to $1.00 per watt.
There have been two main reasons for First Solar’s decline. Besides slowdown in Europe, the main reason is the large subsidy the government of China provides to its solar manufacturers. By some estimates, China gave $30 billion to solar manufacturers last year and now China dominates the solar industry with names like Yingli Green Energy, Suntech Power, Trina Solar and LDK Solar.
Under world trade rules, China is perfectly justified in subsidizing solar industry to grow domestically. However, China cannot subsidize exports under world trade rules. Under the rules, Chinese companies are also not allowed to export solar panels below cost.
U.S. solar manufacturers have filed a complaint with the International Trade Commission (ITC). The complaint states that the Chinese government is unfairly subsidizing Chinese manufacturers to help them drop prices at artificially low levels. The text of the complaint is available here.
From an investment perspective, the stock is beaten down. Several analysts have lately been recommending the stock as a buy and touting it as an underpriced value name.
Considering how much this stock has fallen, there is some merit to buy recommendations. However, my quantitative screen shows fair value for First Solar stock to be $25.00 which implies another 40% drop.
Infighting in Washington is not going to stop, nor is China going to stop subsidizing its PV makers. There is not much hope for the U.S. solar industry.
Full Disclosure: I intend to short sell First Solar stock on any major bounce if all six of my screens are met at such time. and I will notify my subscribers. On the other hand, if the stock drops to the mid $20s, it will become a prime acquisition candidate and I would buy it and notify my ZYX Change Method subscribers. Write me: Nigam@TheAroraReport.com, or follow me on twitter @TheAroraReport.com.
