First Solar: Third-Party Audit Finds Use of Forced Labor at Malaysia Factory

On Aug. 15 First Solar FSLR disclosed that a recent audit found four onsite service providers at its Malaysia factory subjected migrant workers to forced labor. Specifically, the migrant workers were subjected to unethical recruitment, including the payment of recruitment fees in their home countries, passport retention, and the unlawful retention of wages. The company is requiring the service providers to change how they treat workers and agree to periodic reviews by First Solar moving forward. We maintain our prior financial estimates and leave our $185 fair value estimate unchanged. We view shares as fairly valued.

The issue of forced labor within the solar supply chain has been of increasing focus in recent years. The Uyghur Forced Labor Prevention Act, passed in 2021, has sought to eliminate the use of forced labor to make products imported into the U.S. from the Xinjiang region of China. In response, First Solar’s crystalline silicon competitors have increasingly sought to diversify upstream supply chains and ensure adequate labor practices.

At the end of 2023 we estimate Malaysia will account for roughly 25% of First Solar’s nameplate capacity. We expect this contribution to decline to approximately 15% in 2026 following the company’s significant capacity expansions in the U.S. and India. Longer term, we place a diminished value on its Malaysia and Vietnam factories given its significant U.S. capacity expansion plans and likely preference by U.S. developers for domestically produced solar panels given bonus tax credits.

First Solar remains poised to deliver a windfall in profits in the coming years thanks to U.S. manufacturing credits and its leading domestic position. However, we see this upside as largely priced in following its significant outperformance over the past year.

(Aug. 16, 2023): The previous headline referred to an internal audit. It was a third-party audit.