Shares of First Solar plummeted over 13% after BMO Capital Markets downgraded the stock, citing concerns about Tesla's potential entry into large-scale solar manufacturing. Tesla CEO Elon Musk has signaled plans for a vertically integrated solar production, which could disrupt the current market dynamics. This move has raised questions about First Solar's long-term competitive positioning.

The downgrade reflects anxieties about increased supply and its impact on module pricing. BMO analysts anticipate Tesla's efforts to materialize over the next few quarters. The firm's analysis indicates that First Solar's valuation already reflects a terminal module price of about $0.29 per watt, which could be at risk if Tesla floods the market with modules.

Tesla's expansion into solar could pressure module pricing or act as an overhang on First Solar's shares. While the precise timing and scale of Tesla's solar ambitions remain uncertain, the potential for increased competition has spooked investors. First Solar currently has about 14.1 gigawatts of US capacity, while T1 Energy is expected to reach 2.1 gigawatts of integrated solar manufacturing capacity by the end of 2026.

Investors are now closely watching Tesla's moves in the solar market. Any excess capacity from Tesla, and whether it will be sold to third parties, will be critical. Additionally, any changes to Section 232 tariffs on polysilicon and related products could further impact module prices. The next few quarters will be vital for understanding the true impact on First Solar.