BMO downgrades First Solar on potential Tesla competition

Tesla (TSLA) CEO Elon Musk has long been vocal about his support for solar energy, which he sees as growing even more critical as the world's energy supply gets increasingly tested by the demands of artificial intelligence infrastructure.

"Even if you somehow burned Jupiter and everything that is not the Sun in a fusion reactor, the Sun would still round up to 100% of all energy," he said in a post on X in November. "The Sun is all that matters long-term."

And replying to a post on X last August that included a screenshot of an article from CNBC indicating that the Trump administration would not be funding any solar or wind power projects, Musk had a blunt message for his former boss in the White House.

"Solar is the only option that scales," he said.

Musk now seems ready to put his considerable financial resources where his mouth is and enter the solar energy manufacturing business.

During an interview with BlackRock CEO Larry Fink at the World Economic Forum in Davos, Switzerland last week, Musk said that Tesla and SpaceX have plans to work toward 100 gigawatts a year of annual solar manufacturing within three years.

“We think the best way to add significant capability to the grid is, or energy to the grid, let’s say it’s powering AI data centers, is solar and batteries on Earth and solar in space,” he said. “So that’s why we’re gonna work towards getting 100 gigawatts a year of solar cell production, integrating across the entire supply chain, from raw materials all the way to finished solar panels.”

Musk reiterated these plans during Tesla's fourth-quarter earnings call on Wednesday, saying the company is "going to be significant manufacturers of solar cells" through its Tesla Energy team.

"The solar opportunity is underestimated," he added. "We think the best way to add significant capability to the grid is, or energy to the grid in the states powering AI data centers is solar and batteries on Earth and solar in space."

First Solar could face pricing pressure

Of course, Musk has a track record of making bold promises that don't pan out - or at least not as quickly as he predicts they will - and so BMO Capital analysts at first dismissed Tesla's solar energy ambitions as being "aspirational."

However, the firm now anticipates the company's efforts in the energy business to take shape in the coming quarters, which was enough to downgrade First Solar (FSLR) on Thursday to Market Perform from Outperform.

BMO said that Tesla's expansion into solar module manufacturing could cause an "overhang" for First Solar, which is the only large-scale solar panel manufacturer based in the US.

Specifically, the potential for additional supply could lower long-term module pricing, which would be significant since First Solar has increasingly relied on higher US module average selling prices for its revenue stream.

Shares of FSLR sank 10.2% on Thursday's downgrade. It has dropped 14.3% to start the year.

First Solar currently has about 14.1 gigawatts of capacity in the US, and BMO is projecting US utility-scale solar capacity growth to reach roughly 45 to 50 gigawatts per year.

Tesla has proven its prowess at scaling is energy business fairly rapidly, which could put increased competitive pressure on First Solar in the near future.

And while nuclear energy has generated a significant amount of hype - and Wall Street love - for its expected role in powering the proliferation of AI data centers, Musk is clearly going all-in on solar instead.

"Solar power is so obviously the future for anyone who can do elementary math,” he said in June.