First Solar Investors Overlooking This Big Risk?

Core Viewpoint - First Solar has outperformed its sector peers with a stock increase of approximately 13% year-to-date, while Enphase Energy has seen a decline of 38% in the same period. The upcoming U.S. presidential election introduces uncertainty for the solar industry, particularly regarding potential regulatory changes under a Republican administration [1][2]. Company Performance - First Solar's financial performance has been strong, with revenues increasing by 24% year-over-year in the first nine months of 2024 and net profit margins rising to 33%, up from about 22% in the previous year [2][3]. - The company achieved record panel production of 3.8 gigawatts in Q3 2024 and has a bookings backlog of 73.3 gigawatts, indicating strong demand visibility [2]. Regulatory Environment - A significant portion of First Solar's margin expansion is attributed to subsidies, particularly the Section 45X tax credit under the U.S. Inflation Reduction Act, which incentivizes domestic panel manufacturing [3][4]. - First Solar plans to open its fifth factory in Louisiana by 2026, increasing its total U.S. capacity to approximately 14 gigawatts, benefiting from substantial tax credits [3][4]. Market Outlook - The solar industry is expected to continue expanding regardless of the political landscape, driven by declining costs and increasing viability of solar energy [2]. - The macroeconomic environment is improving, with inflation cooling and the Federal Reserve cutting interest rates, which may enhance financing conditions for renewable energy projects [5]. Potential Risks - If the Section 45X tax credits are lost, it could significantly impact First Solar's profitability, although the likelihood of this occurring under a Trump presidency remains uncertain [4]. - Trump's pro-manufacturing stance may provide some protections for First Solar, as he aims to support domestic manufacturers through tariffs and regulatory easing [4].