First Solar's Economic Boost Masks Policy and Earnings Risks

What happened

First Solar released a new economic impact study projecting support for nearly 40,000 American jobs and a $7.8 billion annual contribution to US GDP by 2027, based on its planned capacity expansion to 18 GW. This promotional push comes as DeepValue analysis rates the stock a 'POTENTIAL SELL' due to heavy reliance on Section 45X tax credits, which inflate earnings and are at risk from policy changes. Recent filings show significant backlog debookings of 8.1 GW year-to-date and margin compression, with Q3 2025 gross margin falling to 38.3% from 50.2% a year earlier. The company's earnings are heavily dependent on IRA incentives, with analysts estimating 45X credits contribute about 60% of 2026 EPS, making future profitability vulnerable to legislative shifts. Thus, while First Solar emphasizes economic contributions, investors must weigh this against substantial execution and policy risks that could undermine its current valuation.

Implication

First Solar's press release highlights its role in the US economy but does not address core investment concerns like the sustainability of Section 45X credits. The DeepValue report indicates limited margin of safety at current prices, with a bear case valuation of $180 if policy tightens or debookings increase. Key monitoring points include further backlog quality issues, updates on Louisiana plant commissioning, and legislative developments affecting tax credits. Given crowded ownership and high expectations, any disappointment could lead to significant downside, making it prudent to avoid new purchases until risks de-risk. Therefore, while growth ambitions are clear, investors should prioritize risk assessment over promotional narratives.

Thesis delta

The new economic impact study does not alter the investment thesis; it reiterates First Solar's commitment to US manufacturing but does not mitigate the critical risks of policy dependency and backlog volatility. The core concerns around earnings sustainability and valuation remain intact, reinforcing the 'POTENTIAL SELL' rating with no material shift in outlook.