A Look At Solar Stocks: Why Some Are Rising, Others Are Lagging And What This Mean For The Industry

In December 2017, President Trump took action to impose a tariff on imported solar modules, beginning at 30% the first year with a gradual reduction to 15% over the course of the next four years. The modules are the core components of solar panels, heralded as one of the most promising forms of available renewable energy.

The legislative change was due in large part to complaints from American solar panel manufacturers who expressed concern that foreign markets were cutting into their sales and bottom line figures. While drastic, the tariffs were less than those requested by Suniva and Solar World SWVK, two solar companies who requested government support.  Amid these shakeups, two other industry players, SunPower SPWR and SolarEdge SEDG, are experiencing two very different reactions.

On one hand, SolarEdge is performing relatively well, with shares closing at $45.85 on February 15, a one-week jump from just $32.25 on February 8. CEO Guy Sella reported that the tariff hasn’t impacted panel sales yet and if market performance is any indication, his declarations stand.

However, the opposite holds true for SunPower, as CEO Thomas Werner reported recently that the higher import tariffs have delayed major operational projects while rendering some entirely impossible. Shares closed at $7.39 on February 15, and while that’s a jump over the previous week’s $6.79 on February 8, it’s not much, nor is it anywhere near the January 2018 high of $9.47 recorded on 01/11.

Why, then, are the two companies experiencing such dissimilar results? Taking a look at the business model of each can help shed some light on this question. SolarEdge produces proprietary solar compounds for both commercial and residential clients called inverters that are more difficult to replicate in foreign markets. In addition, the company also creates monitoring software that helps users monitor the performance and efficiency of their solar panel systems.

While the tariff will make it a little more expensive for SolarEdge’s customers to procure their panels, it will likely not affect them as much as the manufacturers themselves. This is because the actual panels are only a small component of the overall installation, and equipment such as the inverters and monitoring systems are integral to the overall solution. As such, when working with clients in the residential and commercial sector, companies like Solar Edge don’t stand to lose too much, as they can also charge for installation labor, maintenance upkeep, and permits to help offset the hike in costs.

Where the panel tariff will hit the hardest is within the utility industry. These are customers who purchase large-scale solar panel systems, with the panel costs constituting a majority of the total price. While utility companies are some of the most promising customers for the renewable energy sector, they have notoriously razor-thin margins, and if the cost increase on the panels spikes too high, they’re likely to avoid the project altogether, favoring alternatives such as natural gas instead.

This is where SunPower stands at a disadvantage. Unlike SolarEdge, which operates primarily within the commercial and residential sector, approximately 40% of its client base is within the utility and power plant sector. As such, sales are dragging and shares are down as customers negatively adjust to the new price points. In addition, its primary focus is solar cells compared to SunPower’s inverters and monitoring software. These cells are produced primarily in Mexico and Malaysia, and import tariffs are impacting the company hard, prompting Werner to apply for an exception to the new regulation.

Moving forward, both companies, as well as the industry as a whole, will need time to adjust to the tariff and see what implications, if any, it will have on market performance, customer retention, and bottom line figures.