Shares of First Solar sank more than 13% on Thursday as investors reacted to the prospect that Tesla could develop substantial, vertically integrated solar manufacturing capability. The announced ambitions by Tesla’s leadership prompted BMO Capital Markets to downgrade First Solar from Outperform to Market Perform and to reduce its price target on the stock to $263 from $285.
Comments from Tesla CEO Elon Musk at the World Economic Forum and remarks on a recent earnings call have signaled the company’s interest in building a domestic, end-to-end solar manufacturing base. On the earnings call, Musk said Tesla plans to pursue a pathway toward 100 gigawatts per year of solar cell production, spanning the supply chain from raw inputs to finished modules.
BMO analysts indicated that Tesla’s effort could come together within the next few quarters. The bank highlighted Tesla’s history of quickly scaling clean-energy manufacturing in the U.S., and said that such pace and scale increase the competitive risk to First Solar’s position in the market.
Important unknowns remain about any expanded Tesla capacity. The timing and magnitude of potential surplus module output, and whether Tesla would market that output to third-party buyers, are uncertain. BMO noted that any additional supply entering the market could exert downward pressure on long-term module pricing or serve as a persistent overhang on First Solar’s share price.
The downgrade reflects a shift in BMO’s assumptions: its earlier investment thesis had increasingly depended on elevated U.S. module average selling prices. BMO estimates that First Solar’s current share price implicitly assumes a terminal module price of about $0.29 per watt, following a 56% gain in the stock over the past 12 months. By contrast, recently booked orders and backlog have been priced in the roughly $0.30 to $0.33 per watt range, according to the firm.
On the supply side and capacity outlook, BMO’s base case assumes U.S. utility-scale solar additions of about 45 to 50 gigawatts per year. First Solar currently accounts for approximately 14.1 gigawatts of U.S. capacity. Separately, T1 Energy is expected to achieve 2.1 gigawatts of integrated solar manufacturing capacity by the end of 2026, with potential to expand by another 3.2 gigawatts beyond that level.
BMO also pointed to trade policy as a variable that could affect U.S. module prices. The firm said any carve-outs or softer outcomes from pending Section 232 tariffs on polysilicon and related products could reduce upside to U.S. module pricing, further complicating the outlook for manufacturers that had been counting on higher domestic prices.
Context and implications
The market reaction reflects investor concern that a large entrant expanding vertically across the solar supply chain could change long-term pricing dynamics for modules and alter competitive positions among U.S. manufacturers. For First Solar, which has seen its valuation rise markedly over the past year, the threat of added supply is now a central risk factor for analysts revising their outlooks.