First Solar (FSLR) Q3 2025: 6.6 GW BP Default Drives Backlog Reset as U.S. Policy Tailwinds Persist

October 30, 2025 | By EarningsIQ Research

First Solar’s Q3 saw a sharp 6.6 GW contract default by BP affiliates, highlighting evolving customer risk amid shifting global energy priorities. Despite record module shipments and robust U.S. policy support, the company trimmed guidance as international demand volatility and supply chain hiccups weighed on near-term execution. Strategic U.S. capacity expansion and disciplined contract enforcement remain central to management’s response as the company navigates a complex market and regulatory environment.

Summary

• Contract Enforcement Takes Center Stage: BP’s 6.6 GW default triggered legal action and backlog revision, underscoring customer risk concentration.
• Domestic Expansion Accelerates: New 3.7 GW U.S. finishing line and Louisiana ramp reflect First Solar’s pivot to onshore value capture.
• Backlog Quality Under Scrutiny: Management signals patience on rebooking and pricing discipline as policy and tariff outcomes remain fluid.

Performance Analysis

First Solar delivered a record 5.3 GW of module sales in Q3, driven by strong U.S. demand and back-weighted deliveries. However, the company’s contracted backlog fell to 54.5 GW after 6.6 GW of BP-related terminations, punctuating the risk of large customer pivots in the renewables sector. Net sales rose sequentially, aided by contract termination payments, but gross margin compressed to 38% from 46% prior quarter, reflecting a lower mix of high-margin U.S. modules, increased underutilization, and supply chain disruption at the Alabama plant.

Section 45X tax credits, U.S. manufacturing incentives, provided a significant earnings buffer, but international operations faced curtailments due to both demand loss and evolving tariff regimes. Warranty liabilities for Series 7 modules increased modestly, with $65 million now reserved for remediation. Cash and liquidity improved, bolstered by $2 billion in gross cash and executed tax credit sales, while working capital benefited from accelerated customer payments.

• Backlog Reset: BP default and related debookings accounted for the majority of the 8.1 GW in contract terminations year-to-date.
• Margin Headwinds: Lower U.S. production mix and supply chain issues drove margin compression and increased underutilization charges.
• Liquidity Strength: Tax credit monetization and improved collections increased gross cash and net cash positions, supporting capex flexibility.

While top-line momentum in U.S. utility-scale solar endures, near-term profitability is pressured by customer churn, supply chain volatility, and the ongoing need to rebalance global production in response to shifting policy and tariff landscapes.

Executive Commentary

Strategic Positioning

1. U.S. Manufacturing Expansion and Policy Leverage

First Solar’s $4.5 billion U.S. capacity buildout is a direct response to mounting policy tailwinds and tariff protections. The announcement of a new 3.7 GW U.S. finishing facility, designed to onshore value-added steps for Series 6 modules, aims to secure domestic content benefits, reduce tariff exposure, and qualify for lucrative 45X tax credits. This move reflects a clear pivot to maximize U.S. market certainty and policy-driven margin enhancement.

2. Contract Discipline and Legal Enforcement

The BP default and ensuing litigation mark a watershed in First Solar’s contracting approach. Management’s willingness to enforce strict contractual remedies, pursue termination payments, and litigate for damages signals a toughened stance on customer compliance. This is especially relevant as large European multinationals reevaluate renewables exposure, raising the bar for future counterparty diligence and risk management.

3. Dynamic Rebooking and Pricing Strategy

With a substantial portion of future module supply now unallocated, First Solar is adopting a patient, value-focused rebooking posture. Management cites the potential for higher pricing, especially as Section 232 tariffs and Foreign Entity of Concern (FEOC) guidance clarify market dynamics. Rather than rushing to fill open slots, the company is prioritizing margin over volume, leveraging policy uncertainty as a pricing catalyst.

4. International Fleet Flexibility and Risk Mitigation

International operations in Malaysia and Vietnam face underutilization risk as U.S. and India policy shifts alter demand patterns. First Solar’s decision to bring finishing lines to the U.S. while evaluating further restructuring of international assets underscores a flexible, scenario-based approach to global capacity management. The company is actively negotiating bilateral deals for remaining international volumes, but future utilization hinges on tariff and policy outcomes.

5. Supply Chain Resilience Initiatives

Glass supply disruptions at the Alabama plant highlighted ongoing vulnerabilities in the solar module supply chain. Corrective actions at suppliers and domestic sourcing focus are intended to prevent recurrence, but the event underscores the importance of robust dual-sourcing and inventory strategies as the company scales U.S. operations.

Key Considerations

This quarter’s results reflect a company at the intersection of policy-driven opportunity and customer-driven risk. First Solar’s U.S.-centric strategy is validated by ongoing trade and tariff developments, but the BP contract fallout exposes the fragility of large, concentrated offtake agreements in a volatile global energy landscape.

Key Considerations:

• Rebooking Leverage: Open supply from BP terminations gives First Solar optionality to capture improved pricing as U.S. policy clarity emerges.
• Backlog Quality and Customer Mix: Management is proactively monitoring counterparty risk, especially among large international utilities and oil majors.
• Policy and Tariff Sensitivity: Section 232, FEOC, and India-U.S. trade negotiations remain major swing factors for both demand and margin structure.
• CapEx and Liquidity Flexibility: Robust cash reserves and tax credit monetization enable continued investment in U.S. manufacturing and potential restructuring of international assets.
• Operational Ramp Execution: Louisiana facility ramp is ahead of schedule, but ongoing vigilance is required to maintain quality and throughput as new lines come online.

Risks

First Solar faces elevated risk from further customer contract terminations, particularly among large international partners reevaluating renewables. Supply chain disruptions, especially in key inputs like glass, and the uncertain trajectory of global tariffs and trade policy could drive further margin volatility or underutilization charges. International fleet utilization remains exposed to evolving demand and policy constraints, with restructuring or asset impairments possible if rebooking lags.

Forward Outlook

For Q4 2025, First Solar guided to:

• Net sales of $4.95 to $5.20 billion for full-year 2025
• Gross margin of 42%, including $1.56 to $1.59 billion in Section 45X tax credits
• Operating income of $1.56 to $1.68 billion
• Earnings per share of $14 to $15 for the year
• Year-end net cash balance of $1.6 to $2.1 billion

Management emphasized that guidance reflects lower international volume from customer terminations, ongoing supply chain normalization, and incremental U.S. production ramp.

• Rebooking of open capacity will be paced to maximize pricing as policy clarity improves
• Further capex for U.S. finishing lines and possible international restructuring under review

Takeaways

First Solar’s quarter was defined by a major customer default, rapid U.S. expansion, and a disciplined approach to risk and pricing.

• Customer Concentration Risk: The BP default is both a wake-up call on counterparty diligence and an opportunity to reset backlog quality and pricing discipline.
• Policy-Driven Margin Leverage: U.S. policy support and domestic content incentives are central to First Solar’s forward margin and capacity strategy.
• Execution Watchpoint: Investors should monitor rebooking pace, international fleet utilization, and the evolving mix of U.S. versus international module sales as key drivers of margin and growth in 2026 and beyond.

Conclusion

First Solar enters the final stretch of 2025 with a leaner but potentially higher-quality backlog, robust liquidity, and a sharpened focus on U.S. policy tailwinds and operational discipline. The coming quarters will test management’s ability to translate open capacity into premium pricing and to adapt global manufacturing to a volatile customer and policy landscape.

Industry Read-Through

First Solar’s experience this quarter signals a broader industry inflection: as global renewables demand grows, customer mix and contract enforceability are becoming as critical as technology or scale. U.S. policy support for domestic content, tariffs on imported modules, and Section 45X tax credits are drawing investment and capacity onshore, pressuring international players with less U.S. exposure. Large European utilities’ retreat from renewables may foreshadow similar risks for other solar OEMs, while the ongoing need for robust supply chain management and contract discipline is now a sector-wide imperative.

FSLR Technology Renewable Energy Tariffs Manufacturing Backlog Policy Liquidity