First Solar appears to have come to the end of the line for the smaller format in its Series 4 and previous modules. The company unveiled plans in April to move to a 1.2 x 2 meter large-format Series 6 module in 2019, but to first deploy its Series 5, which features three series 4 modules on twin steel rails with a single electrical interconnection.
On a conference call today First Solar officially buried the Series 5, confirming statements in its third quarter earnings call that it will move directly to Series 6, and has further announced that it will shift Series 6 production forward to 2018.
First Solar had previously planned to manufacture Series 6 in “greenfield” factories, but today it announced that it will build the new large-format modules by retooling existing factories, meaning a ramp down of its Series 4 production. The way the company plans to cut 2017 Series 4 production back to around 2.2 GW while it re-tools, starting in its factory in Ohio.
This will mean layoffs, and an 8-K filed by First Solar indicates that the company will lay off 1,600 workers, or 27% of its global workforce. This change of plans will also cost $500-$700 million, most of which will be from asset impairment and will come in the fourth quarter of 2016. This in turn is expected to result in a 2016 operating loss of $210 to $445 million in 2016, which translates to an operating margin of -7 to -16% for the full year.
If there is any saving grace to these financial impacts, it is that most of the expenses will be non-cash. And while it may cause some concern to shareholders, First Solar is in ample financial position to be able to weather this change, and expects to return to profitability in 2017.
First Solar clearly thinks that accelerating Series 6 roll-out is worth it. The company expects its first Series 6 modules to achieve an efficiency of over 18%, with 420 watt capacity ratings. The larger format is expected to result in lower balance of systems costs, which First Solar considers critical to achieving a cost advantage in the new environment.
During its guidance call, First Solar repeatedly referenced the “tremendous downward pressure on average selling prices” that the industry is facing, both for module sales and power purchase agreements. The company also notes that while it feels its technology had inherent cost advantages, that “in recent years our compeittors have squeezed their supply chains”.
First Solar says that it will first transition its higher-cost production at its Ohio factory, and expects to produce 1 GW of Series 6 modules in 2018, and transition its entire 3 GW manufacturing fleet to Series 6 in 2019. First Solar says that it is also considering using a factory in Vietnam that it built but never utilized.
First Solar still expects to ship 2.4-2.6 GW of PV in 2017, including 400 MW of inventory roll-over from 2016. And even though the company says that revenues will be boosted by revenue recognition from the Moapa and California Flats projects, the manufacturing switch-over and other factors will “combine to make 2017 a challenging year which we do not believe is reflective of our value as a company”.
The company also says that it is concerned about the potential cancellation of the federal Investment Tax Credit (ITC) under the new Trump Administration and Republican Congress, but that little will be known “at least until the energy and tax policies of the new administration are established”.
Update: this article was modified at 9:15 AM EST on November 17. A previous version of this article stated that the number of layoffs was unclear, as this was not specified on the conference call. Since that time regulatory filings have given the number, and our coverage has been changed to reflect this.
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