Solar stocks took a significant hit on Friday as Solaredge, a prominent solar product manufacturer, indicated a sharp decline in European demand. This warning further dampened the sentiment surrounding the renewable energy sector, which has already been grappling with challenges throughout the year.
The Invesco Solar ETF (TAN) faced a 6.57% decline on Friday, with its trading value dropping to $44.18. This marks its lowest since July 2020. A gloomy forecast led to a widespread decrease in solar sector stocks. Notable companies such as Sunrun and Sunnova witnessed stock value drops of 5.7% and 8.9% respectively. Additionally, Enphase Energy recorded a nearly 15% reduction.
Solaredge’s stock value plummeted by 28.2% on Friday. The company projected its third-quarter revenue, gross margins, and operating income to fall short of Wall Street’s expectations. Moreover, they anticipate a “significantly lower” revenue for the fourth quarter. CEO Zvi Lando pointed to unexpected cancellations and delays from European distributors as the main culprits. He attributed these setbacks to excess inventory and lagging installation rates, especially towards the end of summer and in September.
Lando clarified that the revised projections from the Israel-based company were not linked to the Israel-Hamas conflict. He emphasized that their manufacturing processes remained unaffected. Solaredge specializes in the creation and development of inverters. These devices transform the energy produced by solar panels from direct current electricity to alternating current electricity, suitable for electrical grids.
Despite the challenges faced by the solar sector this year, it is worth noting that rising interest rates have negatively impacted the U.S. solar installation financing environment. Year-to-date figures show SolarEdge and the TAN ETF down by 71.1% and 40%, respectively.
In a significant move, Goldman Sachs shifted its rating for Solaredge from ‘buy’ to ‘neutral’ on Friday. They highlighted the deteriorating demand scenario in Europe as a looming challenge for the company as it approaches 2024. This problem, they believe, extends beyond mere seasonal fluctuations.
Analyst Brian Lee commented on the situation, saying, “Following consecutive quarters of disappointing outcomes and projections, defending the stock becomes challenging. We had not anticipated the cumulative impact of ongoing inventory challenges, dwindling end-market demand, and emerging margin issues. These factors are likely to persist as obstacles for the stock, given the evident decline in predictability.”