First Solar Faces Headwinds as Trade Tariffs Cloud Near-Term Outlook

First Solar (NASDAQ: FSLR) delivered a mixed performance in its Q1 2025 earnings report, with a notable miss on both revenue and earnings per share (EPS), prompting a sharp stock decline. While the company reaffirmed its long-term growth narrative centered on U.S. solar demand and domestic manufacturing, near-term headwinds from trade policies and competitive pressures have investors questioning whether the stock’s dip is a buying opportunity or a warning sign.

The Earnings Miss and Immediate Fallout

First Solar’s Q1 EPS of $1.95 fell short of estimates by 23%, while revenue of $844.57 million missed expectations by 2.5%. The results sent shares plunging 9.5% in after-hours trading, closing at $124.25. Despite this, the company maintained a “GREAT” financial health score, buoyed by strong liquidity and a 41% gross margin—up from 37% in Q4 2024—a sign of operational efficiency gains.

The Tariff Dilemma: A Double-Edged Sword

The immediate culprit for the guidance cut is the U.S. government’s new April 2025 tariffs on solar imports from India, Malaysia, and Vietnam, which impose rates of 26%, 24%, and 46%, respectively. While a 90-day pause reduced tariffs to a temporary 10%, uncertainty looms over their long-term impact. First Solar now projects 2025 EPS of $12.50–$17.50, with the upper end assuming the 10% tariff persists and the lower end factoring in reinstated tariffs and operational hurdles.

The tariffs threaten 12 GW of First Solar’s 13.9 GW international-to-U.S. backlog, which includes contracts with termination clauses if margins erode. To date, no contracts have been terminated, but the risk remains. The tariffs also incentivize Chinese manufacturers to exploit loopholes via countries like Laos and Indonesia, intensifying competition.

Domestic Manufacturing: A Strategic Hedge Against Trade Chaos

First Solar is doubling down on U.S. manufacturing, aiming to boost domestic capacity to 14 GW by 2026 through its Alabama factory, which is set to begin commercial operations by late 2025. This vertical integration—spanning polysilicon to panel production—gives the company a unique advantage as the only U.S.-based vertically integrated photovoltaic manufacturer. CEO Mark Wittmeier emphasized its 30,000 U.S. jobs and $2.8 billion annual payroll, underscoring its domestic supply chain resilience.

The company’s CURE technology, which improves energy output and durability, is another critical differentiator. CFO Alex Bradley noted that $32.5 billion of the backlog includes potential revenue adjustments tied to CURE milestones, with up to $600 million in upside by 2028. However, $4.6 billion was removed from the backlog since Q4 due to expired contracts or delayed timelines, highlighting execution risks.

Policy Risks and the Long Game

First Solar’s optimism hinges on sustained U.S. solar demand, driven by projected 50% growth in electricity needs by 2050 and the cost-effectiveness of solar in grid expansion. Yet, policy uncertainty—particularly around the Inflation Reduction Act’s clean energy tax credits—adds volatility. The company is lobbying for the Leveling the Playing Field Act, which would address unfair trade practices, but legislative timelines are uncertain.

Conclusion: A Hold for Now, but Watch for Tariff Resolution

First Solar’s Q1 stumble and lowered guidance underscore near-term risks tied to tariffs and supply chain dynamics. With $400–900 million in net cash by year-end, the balance sheet remains strong, and the 41% gross margin signals underlying operational strength. However, investors must weigh the $12.50–$17.50 EPS range against a stock that trades at 11x the midpoint of its 2025 guidance—a valuation that assumes tariffs stabilize.

If the 10% tariff structure persists, First Solar could deliver on the upper end of its guidance, but risks remain if trade tensions escalate. Given the $124.25 price, a Hold rating is prudent until clarity emerges. For long-term investors, the company’s 14 GW domestic capacity goal and CURE technology position it to capitalize on U.S. solar’s $32.5 billion backlog potential, making it a compelling play on energy transition trends—if near-term noise can be weathered.

In short, First Solar is a stock to watch closely, but patience is warranted until trade policies and execution risks crystallize.