Enphase Energy (NASDAQ: ENPH) stock is down another 20%. ENPH fell on the results announcement and to be fair they weren’t too bad. It’s the forecasts about the near future that matter. And the problem there is something that really cannot be solved by Enphase itself. Solar power installations are just getting more expensive as interest rates rise. Therefore fewer people are installing solar. And, let’s be fair about this, there’s not much that an individual company can do about interest rates across the economy.
We can also run this the other way around. Economy wide interest rates have been very low to negative over the past decade or so. Low if we look only at nominal rates, negative often enough if we look at real rates, adjusted for the inflation rate. This makes capital expenditure now in return for no future fuel costs look like a good deal. But once we’ve got to add back in financing costs at a positive real and nominal rate that appearance of a great deal rather disappears.
We’ve made this point before about Enphase: “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.”
Enphase Energy stock price from Google Finance
We’ve also made the same point about the sector stablemate, SolarEdge: “SolarEdge Technologies (NASDAQ: SEDG) stock is down 28% after their results forecast. The point they’ve made is that sales are going to be lower than expected. Well, OK - but then this should be obvious enough. Solar systems are high capital installations which need to be financed. If financing costs go up - if interest rates rise - then fewer people will buy less of these now more expensive solar systems. This is not complex economics, it’s not even complicated accounting.”
And so it is with the announced results at Enphase. The recent past was good enough but the future looks not so good: “Q3 revenues fell 13% Y/Y and 22.5% Q/Q to $551M, below analyst consensus $566M, saying U.S. revenues dropped 16% Q/Q because of macroeconomic conditions, and Europe sales declined 34% due to high inventory at the company's distribution partners along with a softening in demand in key markets of the Netherlands, France and Germany. For Q4, Enphase (ENPH) said it expects revenues of $300M-$350M, far below $579M analyst consensus estimate, which includes shipments of 80-100 MWh of IQ Batteries, and non-GAAP gross margin of 48%-51% with net IRA benefit and 40%-43% before net IRA benefit.”
“Macroeconomic” here does mean that turn in interest rates. As such it’s not something Enphase can really do anything about.