First Solar (FSLR.US) shares plummeted 10.2% during Thursday's trading session after BMO Capital Markets downgraded the stock from "Outperform" to "Market Perform," simultaneously reducing its price target from $285 to $263. The firm highlighted that potential competitive threats from new domestic solar manufacturing capacity could persistently weigh on the company's stock price. As of the latest update, the stock extended its losses in after-hours trading, falling an additional 2.7%.

BMO analyst Amit Thakkar stated that he initially viewed Tesla (TSLA.US) CEO Elon Musk's comments last week at Davos—regarding the potential construction of a large-scale, vertically integrated solar module manufacturing base for self-sufficiency—as a "grand vision." However, Musk's statements during Tesla's earnings call this week indicate that "this is likely to become a formally advanced plan in the coming quarters and could pressure First Solar's stock price for some time."

Tesla's specific timeline, pace of execution, and the ultimate scale of excess solar module capacity that might need to be sold to entities beyond its own operations remain uncertain. Nevertheless, Thakkar noted in his report, "Tesla's track record of rapidly scaling clean energy manufacturing capacity in the U.S. (such as energy storage systems and inverters) increases the risk to First Solar's competitive position."

Thakkar further analyzed that even if only a portion of Tesla's planned 100-gigawatt manufacturing capacity is made available to third parties, it could negatively impact long-term module pricing, or at the very least be perceived by the market as a potential overhang on First Solar's stock price.