Retooling, construction troubles bite First Solar’s Q1 financials

The retooling of a solar factory is not an easy or straightforward process, and a lot can go wrong when replacing tools and ramping production lines. This is especially true when you are retooling not just one but retooling and/or building five factories across the globe, and additionally dealing with the uneven timing of revenues that is inherent to large-scale project development.

These factors appeared to have been a perfect storm for First Solar in the first quarter of 2019. The company’s revenues fell 6% year-over-year to $532 million, and First Solar additionally dipped into the red with a $77 million operating loss and a net loss of $68 million.

Such losses are unusual for First Solar, even during its massive, multi-gigawatt retooling of factories as it moves from its legacy Series 4 to the larger Series 6. And First Solar seems to have seen this coming, with CEO Mark Widmar reminding those on the company’s Q1 results call that executives had previously stated that “timing of ramp and project charges as well as system sales would have the most acute impacts during the first quarter”.

EPC restructuring

Not all of the company’s difficulties were related to its retooling; First Solar also noted that revenues from its sale of projects which it develops and builds was down, which is not an unusual development given the bumpy quarter-to-quarter nature of project development.

However, on the call First Solar also revealed multiple issues with its engineering, procurement and construction (EPC) business. CEO Mark Widmar reported difficulties in keeping costs down in its EPC business, some of which was related to labor shortages – something that we are likely to see more of as the labor market struggles to keep up with the coming boom in large-scale solar – and weather delays.

But Widmar also stated that the division’s recent record of cost management “failed to meet our expectations”, and heads are rolling. First Solar says that it will restructure the EPC division, including replacing its leadership and reviewing some of its sub-contractor relationships.

Ramp ongoing

But as First Solar revamps its EPC division, more and mores of its Series 6 capacity is coming online. During Q1 First Solar began ramping its second factory in Vietnam, which is the fifth factory to begin making the large-format modules.

First Solar already has a fairly significant capacity of Series 6 humming, and managed to produce 900 MW of modules during the first quarter, about half of which was its legacy S4 and half was S6.

As it ramps its new factories, First Solar says that it is learning from its previous ramps, and is reaching higher capacity utilizations faster, but there is still inevitable downtime as the new machines come online and are tuned.

And it is not just output that is benefitting; First Solar notes that in just two months it is seeing 6 watts of additional power per module in its S6 production, supported by a higher portion of anti-reflective coating usage. Due in large part to its larger format the S6 was already a powerhouse, and the company’s current data sheet shows modules with power ratings up to 445 watts.

Sold out into 2021

But perhaps the best measure of First Solar’s solid position is that its products are sold out for the foreseeable future. The company currently reports 12.2 GW of booked modules, and estimates that given the current schedule of factories that it expects to come online that it is sold out 1/3 of the way through 2021.

First Solar also upped its guidance for 2019, and is now expecting $3.5-$3.7 billion in annual revenues; the company’s expected shipments of 5.4-5.6 GW remains unchanged. This means stepping up to an average of 1.5 GW shipped each quarter for the remainder of the year, and First Solar notes that fleet efficiency, throughput, yield and cost are improving.

By 2021, the company expects to be producing 6.5 GW of solar per year, as the only thin-film company that has remained among the world’s largest PV makers. So while Q1 was bumpy, First Solar appears to still have a strong future ahead of it.