First Solar Q2 2026: net sales fell 3.7% to $1.06B on lower contract-termination revenue, but net income rose 23.6% to $422.6M ($3.92/share) as a one-off $88.6M tariff-refund benefit and the Section 45X manufacturing credit — nearly equal to operating profit — lifted gross margin to 57.3%.
Revenue
$1.1B
-3.7% YoY
Net income
$423M
+23.6% YoY
Diluted EPS
$3.92
+23.3% YoY
Operating margin
42.6%
Overview
First Solar's second-quarter revenue slipped 3.7% to $1,056.2 million, but net income rose 23.6% to $422.6 million ($3.92 per diluted share, up from $3.18). The 10-Q gives three reasons the two numbers moved in opposite directions. Revenue fell because the year-ago quarter included more revenue from customer contract terminations (payments First Solar books when a buyer walks away from a module order), which outweighed a 5.3% rise in the volume of modules sold. Profit rose because of an $88.6 million one-off net benefit from expected tariff refunds, a bigger Section 45X manufacturing tax credit, and $35.6 million lower shipping costs.
The company sold 3.7 GW of modules (3.6 GW a year earlier) and produced 4.3 GW (4.2 GW). A gigawatt (GW) is one billion watts of panel capacity, roughly the peak output of a large power plant.
Key figures
Metric
Q2 2026
Q2 2025
YoY Change
Net sales
$1,056.2M
$1,097.2M
-3.7%
Gross margin
57.3%
45.6%
+11.7 pts
Operating income
$450.4M
$361.6M
+24.6%
Operating margin
42.6%
33.0%
+9.6 pts
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Government-grant benefit in cost of sales (mainly Section 45X)
$444.5M
$377.0M
+17.9%
Adjusted EBITDA (company measure, from the earnings release)
$643.6M
$560.2M
+14.9%
First half of 2026: net sales $2,100.4 million (+8.2%), with module volume sold up 16.8%; gross margin 51.9% (43.5%); operating income $795.7 million (+36.5%); net income $769.2 million (+39.5%); diluted EPS $7.14 (+39.2%, from $5.13).
Section 45X: where most of the profit comes from
Section 45X is a federal tax credit, created by the 2022 Inflation Reduction Act (IRA), that pays manufacturers for each solar component made in the US and sold to a customer. First Solar says it qualifies for up to about 17 cents per watt for each module fully produced in the US. It can take the credit as a cash refund from the government or sell it to another company. First Solar records it as a reduction to cost of sales, so it shows up in gross margin rather than as a separate line.
The filing's government-grant note shows $444.5 million of income-related grant benefits credited against cost of sales this quarter, up from $377.0 million. Section 45X is the credit this category covers. The MD&A says more US-made modules qualifying for the credit cut cost of sales by $70.7 million year over year ($188.6 million for the half-year).
Compare that with the income statement:
Gross profit was $605.0 million. Without the $444.5 million grant benefit it would have been about $160.5 million, a 15.2% gross margin, versus 11.2% a year earlier on the same basis. Also removing the $88.6 million one-off tariff-refund benefit leaves roughly $72 million, or about 7% of sales.
The grant benefit ($444.5 million) was almost equal to the quarter's entire operating income ($450.4 million).
So at today's prices and costs, the modules themselves are only modestly profitable, and the US tax credit makes up nearly all of First Solar's operating profit. For the full year, guidance assumes $2.10–2.19 billion of 45X credits within a gross-profit forecast of $2.4–2.6 billion.
The way the credit turns into cash is changing. In 2025 First Solar sold its credits to other companies at a discount (for example, $699.7 million of credits for $668.2 million in cash in October 2025). This year it collected $117.6 million directly from the US Treasury for 2024 credits, and the earnings release shows no 45X sale discount in Q2 2026, versus $29.0 million in Q2 2025. As a result, government grants receivable rose to $1,263.3 million at June 30 ($284.5 million current plus $978.8 million non-current), from $625.2 million at year-end. Most of that is classed as non-current, meaning it is expected more than a year out: money earned but not yet collected.
Tariffs: a one-time boost, plus ongoing policy risk
In February 2026 the US Supreme Court ruled that the IEEPA "reciprocal" tariffs imposed in 2025 were unlawful. During Q2 First Solar filed refund claims for IEEPA tariffs it had paid and began receiving payments. It booked an $88.6 million net benefit: the expected refunds minus the amounts it estimates it owes customers who had paid toward those tariffs. The 10-Q warns that the final recovery "may differ from the full amount we previously paid, and that difference may be material." The refunds also added interest income. This benefit will not repeat, and it explains a large part of the jump in gross margin.
Ongoing duties still went up: higher duties and tariffs added $29.3 million to cost of sales ($59.1 million for the half-year). After the ruling, a temporary 10% global tariff under Section 122 ran until July 24, 2026. Section 301 tariffs then replaced it: an effective 10% on countries including Malaysia and India, and 12.5% on others including Vietnam. First Solar has factories in all three. More Section 301 investigations could raise tariffs on those countries again. The company gave four reasons for reducing production of Series 6 modules at its international factories:
Chinese modules dominate Europe at prices near or below cost.
The Indian market is effectively closed to Southeast Asian products.
Southeast Asian supply exceeds demand.
US tariffs apply to imported modules.
The 10-Q also covers wider US policy. The 2025 "One Big Beautiful Bill" law speeds up the end of the solar investment and production tax credits that project developers use, which could weaken demand from First Solar's customers. The same law restricts credits for projects that use components tied to a "foreign entity of concern" (FEOC; in practice, Chinese-linked suppliers) and sharply limits 45X for manufacturers with FEOC ties. First Solar says these rules and tariffs have helped keep US module pricing "stable" despite global oversupply. Its own 45X credit runs through 2032, with a phase-down starting in 2030.
Pricing and backlog
First Solar does not report an average selling price. As a rough cross-check, Q2 revenue divided by 3.7 GW sold is about $0.29 per watt, against about $0.30 a year earlier. This is our own calculation: the GW figures are rounded, and revenue also includes termination payments. For the half-year, the 10-Q partly explains why sales grew only 8.2% while volume grew 16.8%: a larger share of sales went to India at lower prices per watt.
The contracted backlog was 45.1 GW worth $13.6 billion (about $0.30 per watt on average), running through 2030. That figure excludes Indian contracts where payment is not yet fully secured. Of the backlog, 21.6 GW carries price increases tied to future technology improvements, worth up to $0.5 billion more if achieved, mostly in 2027–2028. The 10-Q also says plainly that customers have broken or renegotiated contracts before and may do so again. First Solar is suing BP Solar Holding and its Lightsource affiliate for $323.6 million in unpaid termination payments. The defendants counter-claim $175 million, which First Solar says has no legal basis.
Factories and technology
Fifth US factory: now operating. Last year's start-up costs were for this plant. It is the Louisiana site, though the 10-Q calls it only the "fifth manufacturing facility."
South Carolina (sixth US site): will finish, in the US, modules started at the international factories. The first phase is expected to start in the second half of 2026, with total investment of about $0.3 billion. Start-up costs, mostly for this site, were $26.4 million this quarter, down from $31.2 million a year ago, when they went mostly to the fifth plant.
CuRe: one Ohio factory was permanently converted to the CuRe cell design, which is meant to improve performance in heat and slow degradation. The design will be rolled out in phases to other factories.
R&D spending rose 40% to $76.2 million. Part of the increase is an impairment of equipment no longer expected to be used in the technology roadmap, meaning its book value was written down. A perovskite pilot line is expected in 2027.
Warranty and legal
The Series 7 manufacturing defect found in 2024 affects modules made in 2023–2024 that can lose power early once installed, and settlements with customers are ongoing. The estimated loss range is $40–65 million, with $47 million reserved as the best estimate. Warranty settlements rose to $9.5 million in the quarter from $3.1 million, and the company raised its estimate by $4.3 million. Total warranty liability was flat at $77.2 million. A shareholder class action filed on June 23, 2026 alleges the company understated how US tariff policy would hurt its 2026 outlook. First Solar disputes it and has not estimated any loss.
Cash and balance sheet
Cash and marketable securities fell to $1.7 billion from $2.9 billion at year-end. Working capital (money tied up in day-to-day operations) grew:
Inventories rose to $1,088.1 million from $736.7 million, as production ran ahead of sales.
The 45X receivable grew.
As a result, operating cash flow for the half-year was -$359.8 million (vs. -$458.4 million). Capital spending was $279.8 million (vs. $494.1 million). The company repaid $672.4 million of debt, including prepaying the final $328.2 million of its India credit facility in May. Remaining debt is just $37.6 million, and the earnings release puts net cash at $1.7 billion.
Takeaway: The 23.6% profit increase comes mostly from government policy, not better module economics. The $444.5 million in government-grant benefits (mainly the Section 45X credit) nearly equals the $450.4 million operating profit, and a one-off $88.6 million tariff refund lifted gross margin further. Without the credit, gross margin was about 15%, and roughly 7% after also removing the refund. Revenue per watt edged down over the same period. The key question for First Solar is how long US policy (45X, tariffs, FEOC rules) keeps protecting its domestic pricing.
Guidance and outlook
Management kept its 2026 guidance unchanged (from the Exhibit 99.1 earnings release):
17.0–18.2 GW of modules sold
Net sales of $4.9–5.2 billion
Gross profit of $2.4–2.6 billion, including $2.10–2.19 billion of 45X credits and $115–135 million of costs from underused factories
Operating expenses of $610–635 million
Capital spending of $0.8–1.0 billion
Year-end net cash of $1.7–2.3 billion
For Q3 it expects 3.9–4.5 GW sold, 3.2–3.7 GW of it US-made, and adjusted EBITDA of $625–775 million.
First-half sales were $2.10 billion, so the full-year range requires $2.8–3.1 billion in the second half, a clearly heavier second half. The inventory built in the first half (production exceeded sales by about 0.6 GW in Q2 alone) and a US-heavy Q3 volume plan make that plausible. Subtracting the guided credit from guided gross profit leaves only about $0.21–0.50 billion of full-year gross profit from module sales themselves. The guidance depends on the credit just as the quarter did.
Watch for four things:
whether customers cancel more orders as the tax credits developers rely on phase out
how much of the IEEPA refund actually arrives
how Section 301 tariffs affect the Asian factories
whether South Carolina starts on schedule in the second half