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Why Shares of First Solar Plunged 10.4% Today

Travis Hoium, The Motley Fool

What happened 

Shares of solar manufacturer First Solar (NASDAQ: FSLR) plunged as much as 10.4% in trading Monday as investors feared a falling Chinese yuan would hurt the company. The stock recovered slightly as the day went on and ended 7.6% lower on the day. 

So what

There are worries that a trade war between the U.S. and China is going to get worse, but that's not the bad news for First Solar. The company doesn't make products in China and wouldn't see costs go up if tariffs increase. 

Solar farm in the desert.

Image source: First Solar.

What hurts First Solar is competition from China and the falling cost of commodity solar panels made there. A drop in the yuan's value to a decade low makes solar panels coming from China cheaper in the U.S. and ultimately forces First Solar to lower its prices. That would ultimately lead to lower long-term profits, which is why the stock is down. 

Now what

The solar industry has been through these ups and downs before and a single day's currency move or trade war rumors aren't going to slow the industry down. First Solar's Series 6 product is performing well in the market and has withstood rapid price reductions from China and other Asian manufacturers for more than a decade. That narrative hasn't changed and a falling yuan won't have a big impact on the bottom line, especially if it's paired with new tariffs on competitors' imports. 

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Travis Hoium owns shares of First Solar. The Motley Fool recommends First Solar. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com