First Solar Defended On Loans, Competition

Shares of First Solar (FSLR) traded down $5.69, or over 7%, at $73.52 today, on a couple of different factors.

One of those may or may not be the issues of cost competition raised yesterday afternoon by Axiom Capital’s Gordon Johnson. He argued that Hong Kong-listed GCL-Poly Energy Holdings (3800HK) has the lowest cost structure when taking into account more factors than simply the price of a module.

The other issue is the eternal give-and-take over financing for U.S.-based projects, which took another turn with the sending of a letter regarding loans from members of Congress to the Department of Energy.

On both accounts, bulls rushed in today to defend the company and its shares.

On the latter score, Collins Stewart’s Dan Ries writes that the U.S. House Committee on Energy and Commerce yesterday sent a letter to Secretary Of Energy Steven Chu requesting information about the “1705″ lending program.

At issue is whether there was an improper process of giving loans to solar module maker Solyndra, which went bankrupt. Of concern to First Solar is that it has three projects waiting on final loan approval and any delay that Congress might request would not be great for First Solar.

The three projects are “essential” to Ries’s estimate for First Solar for next year and 2013, he writes. This increases First Solar’s risk, writes Ries, but he does emphasize that First Solar’s credit outlook is far superior to what Solyndra had, and so perhaps the scrutiny should be less severe:

It is difficult to say if this letter will delay these approvals or even prevent these approvals. FSLR�s projects being based on proven technology and have credit worthy buyers in ?place to purchase the power generated, making these loans less at risk of default than the loan made to Solyndra, a manufacturer of an innovative (i.e. unproven) technology.

Ries reiterates a Buy rating on First Solar shares and a $110 price target.

On the other point, relating to competition from GCL, Auriga’s Hari Chandra Polavarapu today defends the company, writing that First Solar’s “cost leadership [is] intact.”

Polavarapu has a Buy rating on First Solar and a $154 price target.

Polavarapu takes direct aim at Johnson’s reporting, declaring, “GCL-Poly has over the past couple of years emerged as a formidable competitor in the polysilicon and wafer segments of c-Si PV both on scale and cost. However, it is not about to displace First Solar as the solar PV industry cost leader despite mindless reporting passing off for analysis by some of our peers.”

In contrast to Johnson’s analysis, which has both companies near-equal on module cost, but GCL having an advantage in total system cost, Polavarapu argues that GCL has lots of hidden costs that drive up the price structure of its solar modules:

However, we note that GCL-Poly nor any of the other Chinese solar PV companies include shipping, warranty, recycling, stock based compensation, capacity ramp and insurance and other production costs, which total about ~$0.07/Wp in added costs. Even if one assumes there is no additional transaction costs between companies for converting GCL-Poly wafer to module, and that GCL-Poly’s International Financial Reporting Standards (IFRS) accounting does not impose additional costs in convergence with U.S. GAAP, GCL-Poly’s cost structure comes to $0.83 by year-end 2011.