Has Trump's 30% Tariff Slam Sent Solar Stocks Into A Free Fall?

It has been more than a month since the Trump administration announced a new import tariff on solar panels and modules at the World Economic Forum. Per the decision, 30% tariff has been levied on solar panel components. In four years' time the tax rate is expected to come down to 15%. However, the first 2.5 gigawatts of imported solar cells are exempted from this tax.

Following the news, the U.S. solar stocks moved up buoyed by hopes that such trade restriction will create jobs for the Americans. However, with the passage of time the solar industry's growth has not sustained as investors seemed to have become skeptical over the long-term success of the tariff.

The 30% tariff on solar panels is one of the first unilateral trade restrictions imposed by Trump as part of a broader protectionist agenda to help U.S. manufacturers against foreign producers who flood the market with cheaper solar modules.

Trump's 30% Solar Tariff: A Blessing In Disguise?

The U.S. administration argued that the Chinese government subsidized solar manufacturers and allowed them to sell products in the United States at less than their fair market value. This led to a three-fold increase in solar power generation capacity across the United States during Obama's second term and quintupled imports. As a result prices slumped 60%. This resulted in increased price competition among the U.S. solar stocks and more than two dozen companies were forced to stall operations.  

U.S. solar industry advocates, however, have been raising strong objections against the move. The U.S. Solar Energy Industries Association predicted that the tariff may cut forecasted solar installations this year by nearly 20%, to 9 gigawatts from 11 gigawatts, and lead to the loss of 23,000 jobs in the United States, the world's fourth-largest solar market after China, Japan and Germany. 

Research firm Wood Mackenzie also estimated that over the next five years the tariffs will reduce U.S. solar installation growth by 10-15%.

Present Industry Trends

The present industry trends are reflecting what many analysts feared. The new tariff was anticipated to result in several job cuts owing to a hike in price. At least for companies like SunPower it did turn out to be true.

However, companies like Suniva and SolarWorld are likely to benefit from the decision. Both companies requested for a trade relief citing their inability to compete against cheap imports that have resulted in a fall in panel prices more than 30% since 2016. They also requested for an imposition of 50% import tariff on solar components. Also, companies like Sunrun, who took timely measures to counter losses due to price rise in the wake of the tariff, did not suffer.

Let's take a detailed look at the a few stocks to understand how the tariff has impacted the solar industry.

Winners

California-based Sunrun Inc. RUN develops, owns, manages and sells residential solar energy systems across the United States. Since it purchases most of its solar panels from Singapore, South Korea and Canada, the company strongly opposed this tariff fearing it might hurt its core business.

On a brighter note, Sunrun made advanced purchase of panels at tariff-free rates. This provided cushion to the company's stock. Moreover, as per the Greentech Media Research, residential PV projects are less sensitive to import tariffs than utility-scale PV projects. This may also be a reason why the company did not suffered following the tariff imposition.

California-based Enphase Energy, Inc. ENPH delivers microinverter technology for the solar industry, which increases productivity and reliability of solar modules. Although, the company produces the microinverters in the United States, these are shipped to manufacturers in Asia to attach to panels before they're sold in the United States. So, technically the products of Enphase Energy are imported by the United States.

The company recently requested for an exemption from the tariff citing that the legislation's intent is to target imported cells and modules, and not inverters. Considering the company's confidence in achieving this exemption, investors remained in favor of its growth. Moreover, after a rather turbulent period, the company returned to profitability per its recently released fourth-quarter results.

Losers

California-based SunPower Corporation SPWR designs, develops, manufactures, markets and sells high performance solar electric power technology products, systems and services for residential, commercial and utility-scale power plant customers worldwide. The company recently started the process of laying off 150-250 people due to an expected loss of $50 million this year alone due to the 30% solar tariff.

However, we should keep in mind that even in the absence of this tariff, its results were not very impressive. The company suffered a 25% decline in revenues during the fourth quarter.

Arizona-based First Solar, Inc. FSLR designs, manufactures and sells solar electric power modules using a proprietary thin-film semiconductor technology. Impressively the company is already exempted from the tariff because its thin-film technology differs from the material used by most companies in Asia.

However, plagued by rapidly dropping silicon prices, First Solar had to cut costs and drive up the efficiency of its panels to remain afloat in the industry. Moreover, the company reported a loss in the fourth quarter of 2017 yet again, owing to a significant rise in expenses resulting from the tax reform passed in December 2017.

Bottom Line

The above discussion clearly indicates that the latest tariff has had an adverse impact on manufacturers that depend on module and panel imports. Yet, most of the companies that have lost value in terms of share price cannot be blamed upon the tariff alone; other inherent factors played their part as well. Although the overall industry has dipped 0.4% since the imposition of the tariff, the long-term impact of the same remains a wait-and-watch story.

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