Investor Lawsuit on Defective Panels Adds to First Solar’s Woes

Solar panel manufacturer First Solar (NASDAQ:FSLR) has been accused of misleading investors over the cost of replacing defective panels in a lawsuit. ^[1] The lawsuit filed on the behalf of investor Mark Smilovits names First Solar’s Chairman and CEO Mark Ahearn and former CEO Rob Gillette among others, accuses the company of hiding the true scope of panel replacement costs that the company is incurring.

First Solar announced in its latest earnings release that it would be taking a $254 million charge on replacing faulty panels that were sold between 2008 to 2009. First Solar’s stock has taken a big hit since Q2 2011 as panel prices started dropping because of capacity expansion lead by Chinese solar companies like Suntech Power (NYSE:STP).

Click here for our full analysis of First Solar.

Lawsuit problem

First Solar has responded to the lawsuit, saying that the case is without merit and that it would seek to defend itself vigorously. ^[1] The lawsuit claims that the company is understating the true costs of the replacement program by hiding the scope of the flaws in its manufacturing process.

In its latest results, First Solar booked a $254 million loss on panel replacement costs to replace modules that failed to perform as expected and showed premature performance losses with degradation under high temperatures. The panels were manufactured between 2008 and 2009 and First Solar blamed flaws in the manufacturing process for the defective panels.

First Solar manufactures thin cell panels based on the Cd-Te technology, which provides it with a low cost edge over polysilicon based PV module producers. Panel manufacturers generally provide a 20-25 year performance guarantee of their products. First Solar has estimated that around 4-8% of the panels it manufactured in a period between 2008-2009 could suffer from the problem.

According to the lawsuit, the company was not reporting the full impact of the losses on its revenues and its profits. ^[1] It goes on further to allege that First Solar did not have the required financial controls to deal with the problem and was improperly reporting revenues with regards to certain products. We believe that the replacement costs booked last year are a one time event and will not have a major impact on the company’s profitability in the future.

We are looking to revise our $53.73 price estimate for First Solar, which is almost double its current market price.

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1. First Solar sued over defective panel costs, Bizjournals [↩] [↩] [↩]