First Solar's Last Bet

 |  About: First Solar, Inc. (FSLR), Includes: CSIQ, SPWR, TSL
by: Joseph Zhu

First Solar (NASDAQ:FSLR), a dominant provider of cadmium telluride (CdTe) thin-film photovoltaic (PV) module and systems, recently announced plans to acquire TetraSun which is a silicon-based PV technology startup. So far, FSLR is the most successful PV player competing with producers of other thin-film technologies and crystalline silicon (c-Si) products. Due to CdTe module's characteristics of low cost and low efficiency, FSLR could only serve the utility-scale generation segment and is not able to reach the distributed generation application which requires high-efficiency modules in tight space constraints. In this acquisition announcement, it is said that TetraSun has developed a particular cell architecture capable of conversion efficiencies exceeding 21% with commercial-scale manufacturing costs comparable to conventional multicrystalline silicon solar cells. Most investors perceive this acquisition as a positive sign of FSLR's upward swing and are optimistic with FSLR's earnings growth. Jim Hughes, CEO of First Solar, said:

TetraSun's breakthrough technology will unlock the half of the PV market which favors high-efficiency solutions, which has been unserved by First Solar to date. This new capability to meet the needs of customers with distributed generation applications, coupled with our leading CdTe offering which remains the benchmark for utility-scale systems, gives us a unique end-to-end suite of solutions to serve the full spectrum of commercial applications.

I think this is FSLR's last bet for being a sustainable winner in the PV industry for the following reasons,

1. CdTe PV module is losing cost advantages over c-Si as polysilicon price has fallen dramatically since 2011.

2. The efficiency of CdTe PV Module is far behind that of c-Si now and it will never catch up.

3. The complement of CdTe and TetraSun may not be necessarily true because TetraSun c-Si will probably replace CdTe in the utility power plant application eventually.

4. No synergy and leverage exist between FSLR and TetraSun in terms of technology or product development and manufacturing.

In short, FSLR is grabbing TetraSun for not only attacking the roof-top market but saving FSLR itself from CdTe deadlock as well. Otherwise, FSLR will have no chance to lead the PV industry as it has been.

CdTe vs. c-Si

First Solar's proprietary CdTe module manufacturing had extremely low cost when polysilicon market price was three-digit dollars per kilogram. The cost per watt of CdTe module in FY2009 was about US$0.9 while Sunpower (NASDAQ:SPWR) had got the cost at US$1.97/w in the end of 4Q09. Today, SPWR has the commensurate cost to FSLR, and Chinese manufacturers like Trina (NYSE:TSL) and Canadian Solar (NASDAQ:CSIQ) have even lower costs. FSLR cost roadmap, source: First Solar, Inc. Analyst Meeting 04/09/2013Click to enlarge

From a conversion efficiency perspective, FSLR CeTd module efficiency by 4Q12 is 12.9% while mainstream c-Si module has already achieved above 15% and the highest efficiency of c-Si module commercialized by SPWR is up to 20%. Though FSLR recently announced a world record for CdTe solar cell efficiency of 18.7% and a module of 16.1%, CdTe module efficiency will only reach 15% around the end of year 2014 and 17% by 2016 as shown below. FSLR CdTe PV module efficiency roadmap, source: First Solar, Inc. Analyst Meeting 04/09/2013Click to enlarge

The toxic element in the CdTe module is another problem with which FSLR needs additional efforts to cope, while c-Si is free of such a headache.

FSLR should have been aware of the intricacies to commercialize high-efficiency CdTe product with comparable cost to c-Si. Maybe FSLR has seen the limitations of CdTe technology for continuous competition with silicon-based PV solutions so that FSLR has to move into the c-Si arena.

FSLR plus TetraSun

People are quite familiar with FSLR but not knowledgeable about TetraSun. In the announcement, TetraSun is introduced as,

TetraSun's core technology is a proprietary cell architecture which breaks the historical tie between high-efficiency and high-cost. Compared to other high-efficiency crystalline silicon cells, TetraSun's advanced cell design is simpler and optimized for manufacturing, requiring fewer process steps with wider tolerances. The design enables high-volume production with higher yields using readily available equipment. Cost-effectiveness is further enhanced by using large-format (156 mm) n-type wafers and eliminating the need for expensive silver and transparent conductive oxide (TCO). The technology also benefits from a low temperature coefficient of power, which produces superior energy yields in hot climates compared to typical silicon PV modules.

It seems a perfect technology that combines all the advantages of various PV technologies exists, e.g. high efficiency, low cost, easy for scale manufacturing, low temperature coefficient, etc. Hughes said that TetraSun's product will help FSLR to address the roof-top (residential and non-residential) market which is gaining solid share in U.S. PV installation. U.S. PV installation forecastClick to enlarge

The utility installation is projected with 31% growth this year and at a steady rate in the following years after a 134% surge in 2012. Therefore, FSLR is not facing the challenges of the utility market shrinking as commonly misunderstood in recent times. What I believe is that FSLR needs a sharp weapon (a substitute of CdTe) for not only penetrating the roof-top application but also keeping on winning the utility market in competition with the c-Si product.

The FSLR product portfolio after acquiring TetraSun looks like this below. FSLR product portfolioClick to enlarge

Right now, the FSLR CdTe product enjoys intermediate margin and high market share in the utility market. CdTe will be moving towards low margin and low market share and phase out eventually due to the product drawbacks as I describe above. FSLR expects TetraSun to be its superstar snatching high margin and high market share from both the roof-top and utility segments. But before the TetraSun product is commercially launched, it remains a question mark in FSLR's portfolio.


Because of the CdTe product constraint, FSLR will lose competitive edges fighting with c-Si peers in the near future. TetraSun or c-Si is an alternative for FSLR to keep abreast of the PV industry and FSLR could not solely count on CdTe for lasting business. FSLR tentatively plans to begin commercial-scale manufacturing of TetraSun technology in the second half of 2014. What is unfavorable for FSLR is that its legacy of thin-film manufacturing may not help much for the TetraSun product launch, since c-Si is basically new to FSLR. I think that it is a 50/50 bet for FSLR to be successful in building up c-Si product in time with the features claimed. The more critical point is that how long CdTe could last before FSLR c-Si product is fully ready to serve the market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.