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.
The business line: “SolarEdge Technologies, Inc., together with its subsidiaries, designs, develops, and sells direct current (DC) optimized inverter systems for solar photovoltaic (PV) installations worldwide. It operates in Solar and All Other segments. The company offers inverters, power optimizers, communication devices, and smart energy management solutions…” and so on. OK, so we know which business sector we’re in. We also know something about the business model. With solar you pay for the next couple of decades of electricity right now. That is, there’s an immediate capital cost followed by decades of no fuel costs. This is something that most need to have financed. Changes in interest rates change the financing costs - and thus have a large influence on the cost of the entire system.
SolarEdge Technologies stock price from Google Finance
Which is exactly what is happening here: “SolarEdge Technologies Inc. late Thursday cut its outlook for third-quarter profits and gross margins and said it expects "significantly lower" fourth-quarter revenue as it faced a slowdown in solar-power installations in Europe. SolarEdge's stock (SEDG) fell more than 15% in the extended session. The maker of inverters and other equipment used in solar-power systems said that the slowdown was "unrelated" to the Israel-Hamas war.” Quite, it isn’t. It’s higher interest rates.
As with Enphase Energy this morning. Higher interest rates make it more expensive to finance a solar installation. Therefore demand for solar installations falls. Add to that that the distribution channel has stock in it for predicted demand. When that falls that means the channel’s stuffed - and orders will fall by more than demand until the stock in distribution once again reflects ongoing demand.
It’s really not a surprise that all the solar stocks are down today. SolarEdge was just the first sign of a general problem.
