First Solar stock price forecast: FSLR faces major risks ahead

By:
on Mar 7, 2024
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  • The recent sell-off in First Solar shares has faded.
  • There are hopes that the solar energy woes have eased.
  • Risks, especially from Chinese manufacturers remain.

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First Solar (NASDAQ: FSLR) stock price has stabilised recently as investors predict that the woes in the solar energy industry have subsided. The stock was trading at $160 on Wednesday, about 22% above its lowest point in 2023. It remains 31% below the highest point in 2023.

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Challenges in the industry remains

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First Solar, one of the biggest solar module manufacturers in the US, has gone through major challenges recently.

The same is true with other such companies in the US and Europe. While demand and investments in solar power have risen recently, overproduction in China has pushed prices to their lowest level in years.

This production has pushed many Western governments, especially in Europe, to bailout some struggling module manufacturers. 

The issue is that China has decades of experience in the industry while the government has spent billions of incentives to boost the industry. This makes it difficult for companies like First Solar and Enphase to struggle.

The situation has worsened in the era of high interest rates. These rates have led to a major slowdown in the renewable energy sector. 

Worse, building solar farms in the US has become a difficult situation because of the existing zoning laws. 

Therefore, the recent performance of First Solar stock is likely because most investors believe that the sector may have bottomed.

This view was confirmed when the company published encouraging financial results. Its net sales jumped to $1.2 billion, bringing the annual revenue to $3.3 billion. This was an improvement from the previous year’s $2.6 billion. 

A part of this revenue came from Pfizer, which gave the company $336 million for tax credits. The rest of the $687 million will come this year. Further, the company’s gross margins fell to 43% in the last quarter. 

First Solar is still facing headwinds

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Still, I believe that First Solar is still a risky company to invest in because of the oversupply from China. The company has continued to press the Biden administration to place sanctions on Chinese imports. In the last earnings call, the CEO said:

“In light of the current and forecasted state of oversupply in these markets and the resulting headwinds to the ability of domestic manufacturers to scale, we call upon governments and policymakers to either reinforce the measures already enacted or move expeditiously to take action.”

The challenge for First Solar and other solar energy companies is that sanctioning Chinese solar companies will not work. We have already seen this happening in Russia, where the country has thrived despite Western sanctions.

Further, Chinese manufacturers are masters in avoiding tariffs. Media reports show that many of them are now moving to build solar manufacturing plants in the US or allied countries like Mexico. 

The implication is that solar panel prices will continue falling, hurting the company’s margins in the long term.

First Solar stock price forecast

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FSLR chart by TradingView

The chart above shows that the FSLR stock price has moved sideways in the past four months. It has remained between the resistance point at $178 and the support at $128.

In this period, the stock has formed what looks like a head and shoulders pattern. In technical analysis, this pattern is followed by a major bearish breakout. It is now trading at the right shoulder.

Therefore, the outlook for the stock is bearish unless bulls push it above the resistance point at $170.

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