First Solar has done it again.
One of the few profitable solar manufacturers has proven that it can execute even when it changes tactics mid-battle.
On Dec. 5, First Solar revealed the first functional Series 6 module off its Perrysburg, Ohio production line. It was a monumental occasion, and not just because it marked the finish line of a $177 million retooling of its major U.S. manufacturing plant.
Image source: First Solar.
The Series 6 was not always part of the company's plans.
But as the efficiency of silicon-based cells continued to creep up, the company made a fateful decision: It would pivot from its Series 4 offering to the Series 6 -- entirely forgoing what would have been a less-advanced but less-costly Series 5. The decision led to the company's first-ever loss:
FSLR Net Income (Annual) data by YCharts.
The success of Dec. 5 is perhaps the best proof to date that First Solar has a world-class management team.
Launch of Series 6 Coming in Q2 2018
Series 6 production is expected to begin in earnest in the second quarter of 2018. Eventually, it will ramp up to its estimated full-capacity annual output of 600 megawatts.
The Series 6 modules offer customers a power rating of 420-445 watts and conversion efficiency of around 17%. At approximately 2 by 1.2 meters, the 6 provides more watts of electricity per lift than comparable crystalline silicon solar panels across a wide array of environmental conditions.
The specifications of the Series 6 are an unequivocal validation of the bull case. An investment in First Solar requires belief in two primary points: (1) that it will maintain its leadership in the utility-scale solar market in the U.S.
Image source: Statista.
And (2) that its technology will at least match the efficiency of competing modules.
Dec. 5's announcement is evidence that management is doing everything possible to fulfill these goals.
Long ago, First Solar chose to make its panels from cadmium telluride (CdTe) instead of the far more common silicon. Primarily, it decided to focus on quality and adaptability rather than blanket costs and efficiency. Its modules, also known as "thin film," absorb a broader range of light frequencies (great for cloudy days) and perform well in harsh weather conditions. Most solar-efficiency measures are lab-tested results at an optimal temperature. This is great for developing new cells, not so great if you're a utility looking for solar panels that work in blazing heat or freezing temperatures.
Benefits aside, the company has been feeling the heat from silicon competitors for years. Gross margins have continued to slide as silicon-based competitors have focused on what they do best: making cheaper and cheaper solar panels.
FSLR Gross Profit Margin (Annual) data by YCharts.
Even if First Solar modules are "better," there's only so much the company can do. Even when a customer has a favorite products, if the price of the generic brand keeps dropping, one starts to consider switching.
Loss-producing competitors that keep cutting prices on increasingly efficient cells is precisely what has bears so nervous.
For instance, SunPower (SPWR) (unprofitable though it is), is making significant strides in the efficiency of its cells. And the company is making inroads into the utility-scale solar market. It makes its products cost-effective by buying cheaper cells from overseas and combining them into solar panels.
Which brings us back to the Series 6 and why it is so pivotal.
Management knew its profitability couldn't withstand a cheap-silicon onslaught forever. It needed to bring its efficiency to a level comparable with the silicon cells of its competition.
What First Solar stock investors need to know
The Series 6, still based on the company's thin-film CdTe technology, expanded the dimensions and efficiency of First Solar's product. It also has a bonus that its utility customers will appreciate: It included an under-mount frame that simplifies the installation of the panel. This may not sound like much, but if you have to install hundreds of solar panels, you'll be glad First Solar took the time to add this feature.
The result of First Solar's Series 6 push has been a top-of-the-line product: a module that generates even more energy than its predecessors, can be easily installed, and functions under a broad array of conditions.
First Solar is continuing to execute on its vision, a clear sign that management knows what it's doing. It also serves as an assurance to investors that the company's Vietnamese production facility (currently under construction) will be up and running on time.
