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First Solar Begins to See Impact of Manufacturing Tax Credits, but Upside Appears Priced In

Guidance and continued bookings momentum underscore the significant tailwinds from the Inflation Reduction Act.

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First Solar Inc
(FSLR)

We have increased our fair value estimate for no-moat First Solar FSLR to $174 per share from $152 following its fourth-quarter results and 2023 outlook. Our increased valuation is a result of assuming the company is able to retain a higher percentage of U.S. solar manufacturing credits as well as higher average selling prices. Despite our valuation bump, we view much of the good news as already priced in at current trading levels.

First Solar’s 2023 guidance and continued bookings momentum underscore the significant tailwinds the company is experiencing following passage of the Inflation Reduction Act last year. In our opinion, this is the most advantaged competitive position First Solar has been in since the days of sky high polysilicon prices 15 years ago. We reiterate our positive moat trend.

Bookings momentum continued with 12 gigawatts booked since its last earnings call, bringing the company’s backlog to an unprecedented nearly 68 gigawatts. First Solar’s capacity is sold out through 2025 and nearly half sold in 2026-2028 (excluding India). In addition, average selling prices, or ASPs, continue to be strong. ASPs on year-to-date bookings averaged $0.315 per watt, above the average of $0.288 per watt in its backlog overall.

First Solar’s 2023 guidance includes the anticipated benefit of nearly $700 million of solar manufacturing tax credits. This annual value should climb to over $1.5 billion by 2025 based on the company’s announced U.S. capacity expansion plans.

We see a high probability First Solar announces a further U.S. capacity expansion in the coming months. The company is awaiting clarity pertaining to the domestic content adder for solar projects, which can add an additional 10% tax credit to the 30% baseline credit. All else equal, we would expect a more restrictive threshold to meet the domestic content requirement to benefit First Solar relative to its competitors given its vertically integrated manufacturing.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Brett Castelli

Equity Analyst
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Brett Castelli is an equity analyst, energy and utilities, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. His coverage focuses on clean energy companies across renewables and emerging technologies.

Before joining Morningstar in 2021, Castelli spent more than eight years in various analyst roles for TortoiseEcofin, a boutique asset manager. His coverage focused on North America and included companies within traditional energy, electric utilities, and renewables. Additionally, he assisted with the firm's environmental, social, and governance efforts and played an important role in integrating ESG into the investment process. Castelli spent a year at the firm's London office following an acquisition.

Castelli holds a bachelor's degree in finance from the University of Missouri's Trulaske College of Business. He also holds the Chartered Financial Analyst® designation.

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