Shares of Israel-based solar inverter manufacturer, SolarEdge Technologies Inc. (NASDAQ:SEDG) have cratered more than 30% in Friday’s intraday session a day after the company issued weak guidance for its upcoming third quarter earnings report. SolarEdge said Q3 revenues, gross margin and operating income will all come in below the low end of the company’s prior guidance, citing "substantial unexpected cancellations and pushouts of existing backlog from our European distributors," due to higher than expected inventory in the channels as well as slower than expected installation rates.
SolarEdge revealed Q3 installation rates were much slower at the end of the summer and in September, a period that usually enjoys a rise in installation rates, and says it expects this trend to persist as the inventory destocking process continues. The company now expects Q3 revenues to clock in at $720M-$730M, significantly lower than the company’s earlier guidance range of $880M-$920M, as well as a $910M analyst consensus estimate. SolarEdge also forecasts non-GAAP operating income of $12M-$31M compared to prior guidance of $115M-$135M and non-GAAP gross margin of 20.1%-21.1%, way lower than its earlier forecast of 28%-31%.
The current year is proving to be an annus horribilis for SolarEdge, with SEDG stock having cratered 72% in the year-to-date.
SolarEdge’s worrying report has pulled down the entire sector, with the sector’s favorite benchmark, the Invesco Solar ETF (NYSEARCA:TAN) down 6.3% on the day. Several of the company’s close peers are also selling off heavily: Enphase Energy (NASDAQ:ENPH) -14.9%, SunPower Corp. (NASDAQ:SPWR) -9.4%, Sunnova Energy (NYSE:NOVA) -9.1%, JinkoSolar Holdings (NYSE:JKS) –6.4% and Sunrun Inc. (NASDAQ:RUN) -6.3%. Related: India Looks To Make Solar Modules Locally
Enphase has been particularly badly hammered due to its considerable exposure to the European market. "Europe had been viewed as the main growth driver, but this engine now looks to be faltering," Citi analyst Vikram Bagri has said.
As you might expect, SolarEdge’s weak guidance has earned it a flurry of Wall Street downgrades, with Bank of America, Deutsche Bank, Goldman Sachs, Oppenheimer and Roth MKM cutting ratings and price targets.
Europe Is Stockpiling Chinese Solar Panels
The global energy crisis triggered by Russia’s war in Ukraine exposed Europe’s extreme vulnerability due to the continent’s over-reliance on Russian energy commodities, especially natural gas. Europe responded with overkill, with the continent managing to store so much gas that it emerged from the last winter season with more than enough gas reserves.
Europe has continued stockpiling gas at a record clip in the current year: According to Gas Infrastructure Europe (GIE) data, Europe’s gas inventories hit a new all-time high at 112.92 billion cubic meters (bcm) on 8 October, good for 97% of storage capacity. The y/y increase stands at 9.41 bcm and the build above the five-year average is 11.75 bcm.
According to StanChart, it seems likely that the start of significant inventory draws will be delayed, and the EU is likely to finish the withdrawal season with very high inventories and potentially well above 70 bcm with early forecasts suggesting that the European winter will be extremely warm.
And now it has emerged that Europe is following a similar playbook with solar energy.
New research by Rystad Energy has revealed that some €7 billion ($7.8 billion) worth of solar panels--or 40 gigawatts direct current (GWdc) of capacity--are currently sitting unused in European warehouses. The stockpile is forecast to grow even larger this year, hitting 100 GWdc in storage by the end of 2023.
And, the vast majority of those panels are coming from China, highlighting a serious risk that Europe is shifting from overlying on Russia for gas to depending too much on China for its solar needs.
China is, by a wide margin, leading the world in clean energy investments, accounting for nearly half of the $1.1 trillion that poured into the sector last year, the Asian giant is now the undisputed global leader in solar manufacturing, with four out of five solar panels sold worldwide originating from the country. China has poured over $50 billion into wafer-to-solar panel production lines, 10 times more than Europe, and also controls ~95% of the world’s polysilicon and wafers.
Not surprisingly, leading Chinese solar firms are enjoying roaring profits driven by strong demand and an uptick in panel sales: Jinko Solar reported a staggering 325% jump in net income to 3.8 billion yuan for the first half of the current year; Longi Green Energy Technology Co. Ltd, the world’s largest panel-maker, reported a 42% year-on-year jump in net profit to 9.2 billion yuan ($1.3 billion), Trina Solar Co. Ltd. saw its H1 202 profit soar 179% to 3.5 billion yuan while JA Solar Technology Co. Ltd. saw its net income rise 183% to 4.8 billion yuan.
Unfortunately, Europe gorging itself on Chinese solar products is proving to be disastrous for companies like SolarEdge as well as its American peers.
By Alex Kimani for Oilprice.com
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