Are First Solar’s Latest Results Good or Bad News for Tesla?  

On a day when the S&P 500 is down nearly half a percent, First Solar’s (FSLR) stock is up more than 15% in Wednesday trading. 

The photovoltaic (PV) solar module manufacturer reported Q4 2022 results that were better than analyst expectations. So if you’re a First Solar shareholder, today’s news is music to your ears. 

However, if you’re a Tesla (TSLA) shareholder, not only are you probably upset about the nearly 3% fall in its share price, but you might also be wondering what this means for Tesla’s solar business. 

First Solar’s news could be beneficial to all solar energy players, including Tesla, or it could suggest that First Solar is ready to take market share from Elon Musk’s solar business. 

Here’s a look at both sides of the argument.

A Big Thanks to Joe Biden

First, before getting into Joe Biden and the Inflation Reduction Act (IRA), let’s review First Solar’s Q4 2022 results. 

On the top line, it had revenue of $1.0 billion, $5,4 million higher than the consensus estimate. However, on the bottom line, it lost 7 cents per share, 10 cents better than what analysts were expecting. For all of 2022, its revenue was $2.62 billion, $10 million better than the consensus, while it had an operating loss of $27.2 billion, way down from its 2021 operating profit of $586.8 billion. 

At this point, you’re probably wondering why the stock is up so much. The report was less about the past and more about the future. Its guidance for 2023 is $3.5 billion in revenue at the midpoint, 34% higher than this past year. Its operating income is expected to return in 2023 to $808 million at the midpoint, 15% higher than the analyst estimate. 

A chunk of the gains in 2023 revenue will come from IRA Section 45X tax credits of between $660 million and $710 million. Hence the shout-out to Joe Biden.

Guggenheim has a Buy rating on First Solar stock with a $255 target price, 31% higher than where it’s currently trading. The investment firm believes that First Solar could be one of, if not the most significant U.S. beneficiaries of the IRA.

“The focus for investors was not Q4 results but rather the outlook that the company furnished for 2023 and beyond, factoring in the substantial benefits that the IRA is expected to generate for First Solar,” Barron’s reported Guggenheim’s comments.

Guggenheim estimates that the tax credits could boost the company’s EBITDA to $3.1 billion by 2025, up from -$11.0 million in 2022. That’s an unbelievable jump in EBITDA profitability.

It finished 2022 with a record backlog of future deliveries of 67.7 gigawatts (GW). Based on its global capacity of 21.4 GW by 2026, it will take First Solar several years to make good on its current backlog. 

That’s an excellent problem to have.

What About Tesla Energy?

It’s been seven years since Elon Musk launched his company’s solar roof tiles, an innovative product meant to combine energy efficiency with a practical product that could last for years. And it would be cheaper than regular solar panels. 

This was part of the billionaire’s master plan for Tesla. But, according to reporting from The Information's Becky Peterson, the roof tiles have been nothing short of an unmitigated disaster.     

“The roof has proved difficult to manufacture and expensive to install, topping $100,000 for some customers—more than five times the cost of covering the same roof with conventional solar panels,” Peterson writes. “Tesla increasingly markets the roof as a luxury product. Despite the high costs, the company still loses money on the roofs, and executives are discussing raising the price, according to a person close to the project.”

Let’s consider Tesla's energy generation and storage segment. It was created in November 2016 after SolarCity was acquired for $2.6 billion. 

In its first full year under the Tesla umbrella, the unit had revenue of $1.1 billion. By 2022, they had increased to $3.9 billion, a compound annual growth rate of 29%. That’s reasonably healthy. Of course, its automotive revenue over the same period grew by 49% and from a much bigger base. 

Further, and probably more damning, is that its energy generation and storage segment had a gross margin of 22% in 2017, 100 basis points less than the automotive segment. By 2022, the energy unit’s gross margin had dropped to 7.4%, while the automotive segment had increased to 28.5%, 550 basis points higher. 

However, if you look at the reasons for the 40% increase in revenue in 2022, you’ll see it’s mostly for its commercial Megapack and residential Powerwall battery storage. There’s almost no recognition of its solar roof panels in its 2022 10-K. 

This suggests Tesla’s solar roof tiles make almost no contribution to Tesla’s top and bottom lines. The same can’t be said for First Solar, whose solar modules are expected to continue gaining market share in the years ahead. 

If I’m a Tesla investor, First Solar’s news reminds me that Elon Musk is just dabbling in the solar panel business. It will take a modern miracle -- especially given it appears to be losing money on the roof tiles -- for this minuscule part of Tesla’s business to matter. Its funeral is imminent. 

First Solar, however, is an excellent long-term buy.

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