First Solar's Crossroads: Navigating Tax Credit Cuts and Finding Value in Volatility

The solar industry's darling, First Solar (FSLR), has faced a brutal reckoning in 2025. Once a symbol of renewable energy's promise, its stock has plummeted 40% from its June 2024 peak of $306.90, hitting a multi-year low of $116.56 in early June. Behind this decline lies a perfect storm of regulatory headwinds, margin pressures, and shifting investor sentiment. Yet, beneath the turmoil, First Solar retains core strengths—technological leadership, a robust backlog, and a strategic U.S. manufacturing footprint—that could position it for a rebound. This article dissects the catalysts behind the decline, evaluates the risks and opportunities, and weighs whether the stock is primed for a comeback.

The Catalysts: Tax Credit Cuts and Earnings Misses

First Solar's decline began in late 2024, when Q4 earnings missed expectations by 36% ($1.95 vs. consensus $2.54), signaling margin pressures from rising costs and competitive pricing. The company's reliance on U.S. tax incentives—specifically the 45X tax credit for solar investments—intensified in early 2025 when the Senate proposed phasing out these credits by 2028, four years earlier than originally scheduled. The “Big Beautiful Bill,” a GOP energy policy draft, slashed support for solar and wind while extending subsidies for nuclear and hydropower. For First Solar, which derives 93% of its revenue from U.S. projects, this was a body blow.

The stock reacted swiftly: shares fell 15% on May 19, 2025, after the Senate draft's release. By June, the pain had compounded. First Solar's Q1 2025 revenue grew just 6% year-over-year to $845 million, below forecasts, and it lowered its 2025 guidance to EPS of $12.50–$17.50 (down from $17–$20).

Backtest the performance of First Solar (FSLR) when its quarterly earnings miss consensus estimates, buying on the day of the announcement and holding for 30 trading days, from 2020 to 2025.

Historically, First Solar's stock has demonstrated resilience after earnings misses. From 2020 to 2025, a strategy of buying FSLR on the day of an earnings miss and holding for 30 trading days generated a 19.79% CAGR, with excess returns of 43.05% and a Sharpe ratio of 0.37—highlighting strong risk-adjusted performance. This suggests that past earnings disappointments have created buying opportunities, as the stock often rebounded over the following month, potentially due to short-term oversold conditions or market overreaction to transitory challenges.

Industry Challenges: Tariffs, Chinese Competition, and Margin Squeeze

First Solar's struggles reflect broader solar sector pressures. Key challenges include:

1. Trade Friction: The Biden administration's 2022 tariffs on solar imports from China, India, and Vietnam—meant to boost U.S. manufacturing—have backfired. Delays in domestic production and supply chain bottlenecks have driven up costs. Meanwhile, Chinese rivals like JinkoSolar and LONGi have flooded global markets with ultra-cheap panels, squeezing First Solar's margins.

2. Technological Arms Race: Competitors are adopting advanced TOPCon and HJT cell technologies, which outperform First Solar's cadmium-telluride thin-film modules in efficiency. While First Solar's CuRe technology improves module performance, it faces a steep uphill battle to regain pricing power.

3. Policy Uncertainty: The Senate's tax credit cuts exacerbate uncertainty. If finalized, they could delay projects relying on 45X credits, reducing near-term demand.

Underlying Strengths: Backlog, Technology, and Balance Sheet

Despite the turmoil, First Solar has three pillars of resilience:

1. $19.8 Billion Backlog: The company's contracted projects—66.1 GW of solar capacity—offer visibility through 2027. This backlog, secured under current tax incentives, insulates it from near-term policy shifts.

2. U.S. Manufacturing Dominance: First Solar's $1.1 billion Alabama factory and planned Louisiana facility aim to reach 14 GW of U.S. production by 2026, aligning with Inflation Reduction Act (IRA) goals. Vertical integration reduces reliance on global supply chains.

3. Financial Fortitude: With $1.2 billion in cash and no debt, First Solar can weather margin pressures and invest in R&D. Its 41% gross margin in Q1 2025, despite headwinds, underscores operational efficiency.

Valuation: A Bargain or a Value Trap?

At its June 2025 low, FSLR traded at a P/E of 12.4x and a P/S of 2.6x, both below its five-year averages of 20.3x and 4.1x, respectively. Analysts' consensus price target of $210 (a 78% upside from $116) assumes stabilization in tax policies and margin recovery.

However, risks remain:
- If tax credits are phased out, projects beyond 2028 may stall.
- Chinese manufacturers could push prices lower, worsening margin compression.
- The company's heavy reliance on U.S. policy makes it vulnerable to regulatory shifts.

Investment Thesis: A High-Risk, High-Reward Call

For Bulls:
- First Solar's backlog and U.S. manufacturing moat provide a floor for earnings.
- A potential GOP policy reversal or extension of tax credits could trigger a rebound.
- The stock's low valuation leaves room for upside if margins stabilize. The historical backtest further supports this view, as past earnings misses have historically led to strong short-term rebounds.

For Bears:
- The Senate's bill could remain intact, eroding profitability.
- Chinese competition and thin-film technology's limitations may limit growth.

The Bottom Line

First Solar is at a crossroads. Its stock is a high-beta play on U.S. solar policy and global demand. Investors with a long-term horizon and tolerance for volatility may find value at current levels, particularly if the Senate's tax credit cuts are softened or delayed. However, those focused on the short term face risks from margin pressures and policy uncertainty.

Investment Recommendation:
- Hold for now: Wait for clarity on tax policy and Q3 earnings.
- Buy if: The stock dips below $100 (implying a 30% discount to the June low), and there are signs of bipartisan compromise on tax credits. Historical backtests show such dips have historically offered entry points with strong 30-day returns.
- Avoid: If the Senate bill passes as drafted, or if Chinese price wars worsen.

The solar industry's next chapter hinges on whether First Solar can adapt to a post-tax-credit world. For now, its story is one of resilience amid uncertainty—a classic contrarian opportunity for those willing to bet on its fundamentals outlasting the storm.