U.S.-based solar stocks sold off heavily on Wednesday, and only slightly recovered on Thursday after one of the sector’s leading names, Enphase Energy Inc. (NASDAQ:ENPH), delivered a healthy quarterly report but issued weak guidance sparking fears of industrywide weakness. ENPH shares crashed 25.7% on Wednesday to a 10-month low after the company cut its Q2 revenue guidance, blaming it on weakness in its pivotal U.S. market and higher interest rates.
ENPH took down its U.S.-based peers along with it: First Solar (NASDAQ:FSLR)-5.2%, Sunrun (NASDAQ:RUN)-9.6%, NextEra Energy (NYSE:NEE)-4.0% while SunPower (NASDAQ:SPWR) lost 9.7%. Interestingly, shares of Chinese solar companies were left unscathed: JinkoSolar Holdings and Daqo New Energy (NYSE:DQ) were flat on the day before rallying on Thursday presumably as new money flowed their way from their U.S. rivals.
Enphase reported Q1 2023 revenue of $726.02M (+64.5% Y/Y), beating the Wall Street consensus by $5.51M while Q1 Non-GAAP EPS of $1.37 (+170% Y/Y) beat by $0.15. Unfortunately, those healthy earnings could not save the solar equipment maker, and a flurry of downgrades quickly followed.
Related: Enphase Tanks 24% As Market ‘Overreacts’ To Forecasts
Bank of America downgraded Enphase to Underperform from Neutral with a $169 price target down from $227, saying the weak outlook shows "demand headwinds are here, and they will linger. Headwinds to near term growth are bolstered by weak sell through trends in the distributor channel and inflexible cash advance terms to installers, which leave ongoing challenges throughout 2023," BofA's Julien Dumoulin-Smith said.
Other Wall Street analysts were more upbeat though none hiked their ENPH ratings.
BMO Capital maintained its Outperform rating but lowered its PT to $275, saying Enphase's cautious tone on U.S. growth was more downbeat than expected. However, the analyst was more upbeat than BofA, saying "important positives that emerged during [the post-earnings] call should not be overlooked," and that Enphase’s growing IQ8 mix continues to drive consolidated margin improvement.
Raymond James analyst Pavel Molchanov said net metering reforms in California is likely to create Q2 headwinds for Enphase, but noted the company has been doing extremely well in Europe, with the two catalysts "essentially canceling each other out.’’
Wells Fargo said the ENPH selloff is overdone since the lower guidance around Q2 battery shipments is temporary and sales will increase in the latter half of the current year when the third-generation battery is released. Further, WF noted the company’s core microinverter business remains in the pink of health with Q1 shipments exceeding consensus and Q2 guidance largely in-line.
Cowen kept its Outperform rating, saying Enphase is best positioned over the long term with the stock's weakness as a buying opportunity for long-term investors despite the U.S. residential solar market facing near-term challenges.
Slowdown in Rooftop Solar
Basically, what spooked investors the most was that new regulations in California that allow solar buyers a much smaller credit on their bills for the electricity they feed back to the grid, will result in a large slowdown in installations unless companies like Enphase are able to counter by lowering product prices.
In its call, Enphase said it does not intend to lower prices though ROTH Capital’s Philip Shen noted that it may have no choice. According to Shen, the U.S. residential market for solar "continues to get worse and this eventually could impact the company's volumes by forcing it to cut prices."
There’s an upside to this, though.
California NEM 3.0 legislation--also known as the Solar Billing Plan--is a new version of net energy metering policy that took effect on April 15, 2023. NEM 3.0 features a 75% reduction in export rates (excess electricity pushed onto the grid by solar systems), which in turn will reduce the overall savings and increase the payback period of home solar. This new policy is designed, in part, to encourage homeowners to pair their solar panels with battery storage in a bid to become more self-sufficient and also contribute to a more resilient electricity grid.
In other words, the new legislation is likely to encourage the uptake of Li-ion batteries, a boon for battery manufacturers like Tesla Inc. (NASDAQ:TSLA). Introduced by Tesla in 2015 just three years after the company expanded into solar and clean energy, the Tesla Powerwall is one of the most popular solar batteries available today. Bloomberg New Energy Finance (BNEF) has predicted that energy storage installations across the globe will reach a cumulative 411 gigawatts (or 1,194 gigawatt-hours) by the end of 2030, a 15-fold increase on the 27GW/56GWh of storage that was online at the end of 2021.
By Alex Kimani for Oilprice.com
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Either way all of these subsidies distort markets and interfere with price discovery so expect prices and respective businesses to continue to fail excepting Tesla which has to the maximum extent possible left California for Texas and brought with that move tens of millions of jobs now plain for all to see.