Enphase Energy (NASDAQ: ENPH) stock is down 22%. ENPH stock fell on the news of results from SolarEdge Tech - installations are slowing dramatically. That, in turn, leads to stuffed distribution channels, so it’ll take a quarter or more for the situation to stabilise. The real point here though is higher interest rates. Which is something we should all have seen coming but, clearly, did not.
To remind on what Enphase does: “Enphase Energy, Inc., together with its subsidiaries, designs, develops, manufactures, and sells home energy solutions for the solar photovoltaic industry in the United States and internationally. The company offers semiconductor-based microinverter, which converts energy at the individual solar module level, and combines with its proprietary networking and software technologies to provide energy monitoring” etc. We’ve also got the result coming momentarily. And the expectation n ow is that those results will be bad, as with SolarEdge: “SolarEdge Technologies (NASDAQ:SEDG) shares plunged more than 19% after-hours following the company’s reported preliminary financial results for Q3. The revenue for the quarter is now seen at $720-$730 million, down from the previous expectation of $880-$920M, compared to the consensus estimate of $909.02M.”
Enphase Energy stock price from Google Finance
The big question is why? Is this some blip that will pass or an underlying problem. The answer being that it’s an underlying one - higher interest rates.
Think through it. Solar has no fuel cost. But it replaces that with a high capital cost. Which must, obviously, be financed. This is true whether we talk of the explicit rate paid by a borrower, or the implicit one of interest foregone by a cash purchaser. Higher interest rates simply do make high capital cost items less attractive to buyers. Because there’s now 20 years of interest to pay at a higher rate. Exactly the same process that pushes house prices down when the costs of a mortgage rise. There is no secret to this at all.
Which is why the entire solar sector is now falling - or has fallen perhaps. For this same logic applies across residential and commercial installations. Higher interest rates simply mean that solar has become more expensive. Us humans buy less of what is more expensive - therefore sales and revenues at solar companies are falling because of higher interest rates.
We talked of Enphase Energy before: “That's why this slowdown - it's a stall really - is so damaging to the Enphase stock price. Not because it's a disaster or anything but because it kills off those previous expectations of continued swift growth.” That still applies.