(Bloomberg) — The rooftop solar industry is facing struggles that will eat into profits as panel inventories pile up and demand from consumers slackens due to higher borrowing costs and other inflationary pressures.
SolarEdge Technologies Inc. raised the alarm after the market’s close Thursday when the solar-equipment maker unexpectedly reported that its third-quarter revenue will be well below its previous guidance and warned of slowing installations. The Israel-based company’s shares plunged as much as 37% on Friday, a record drop that wiped out nearly $2 billion of the company’s market capitalization.
Rival Enphase Energy Inc. dropped as much as 16%. Shares of rooftop solar installers Sunrun Inc., SunPower Corp. and Sunnova Energy Inc. also slumped. Citigroup Inc. analyst Vikram Bagri warned of a “rough third-quarter earnings season” for the group, which will begin to report full quarterly results next week.
SolarEdge’s profit cut “is a warning shot for residential solar,” said Rob Barnett, senior analyst for Bloomberg Intelligence. “SolarEdge and other residential-exposed names could be seeing a slowdown attributed to higher interest rates, and elevated inventories in Europe appear to be leading to a demand pullback as companies try to right-size their stockpiles,” Barnett said.
The downbeat results underscore investor concerns about the prospects of once high-flying rooftop solar installers who have seen their share prices fall due to weakening demand. The Invesco Solar ETF, which tracks the solar industry, has dropped 40% since the start of the year. Multiple analysts downgraded SolarEdge’s shares, warning that the slump may stretch into next year. Wall Street analysts have also lowered their price targets for Enphase Energy, SunPower and Sunnova.
While 2022 was a massive growth year for the residential solar industry, demand has now slowed, but the overall market will still grow, said BNEF solar analyst Pol Lezcano.
“Big solar installers that use expensive business models will struggle to cut costs to offset higher financing expenses and slowing demand,” he said.
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