SolarEdg buys solar panels at a high cost. These prices have plummeted. Now they have a lot of excess inventory left over from all their equipment. Levy notes, "The other component of that is the interest rate phenomenon.. Is global because, you know, these are massive capital purchases, and even if they're cheaper in Europe than in the United States, they still have an impact on the economy.". Homeowners are considering whether to buy these.
Levy explains three things that affect demand in the United States. "Overall, the real impact on the United States is the most important factor affecting demand," as well as California's net metering policy changes and "this abnormal year, energy and utility prices have stabilized or even declined in 2019.". Some examples.
Video transcript
Julie Heyman: Solar stocks are getting hammered on Wall Street. The move comes after SolarEdge lowered its guidance and warned of weak demand in Europe. These stocks are down 28%. Joining us
now is Truist Equity Research Analyst Jordan Levy, who covers research in this area. So, Jordan, how bad is the demand for rooftop solar right now?
JORDAN LEVY: Yes. I think it's an evolving story as far as solar is concerned. I think most of the picture of demand in the United States is described in terms of the extent of the decline in demand. Europe is more of a safe haven. We are only now beginning to see some of the slowdown in demand. So it remains to be seen how much that number will fall.
I would say the economics in Europe are still much more favorable for rooftop solar than they are in the US right now. But I think we're going to get a lot more answers to that question in the next few months. JOSH LIPTON
: Jordan, do you have any insight into what you think we might see in terms of weak demand for SolarEdge in Europe? I mean, Jordan, is this somewhat seasonal and beyond what the market was expecting? What do you think is the reason for this?
JORDAN LEVY: Well, I think there are two aspects. Number one, Europe is going through a destocking phase on the solar side. Right? A lot of distributors last year and this year were buying solar panels at a high cost. These prices have plummeted. Now, they have a lot of excess inventory in all of their equipment. So they're really struggling. As a result, you'll see SolarEdge go through a lot of inventory replenishment processes. The other component of that,
I think, is the interest rate phenomenon , which is global, because these are large-scale capital purchases, even if they cost less in Europe than in the United States. This will still affect the homeowner's decision whether to buy these products.
JULIE HEYMAN: Jordan, for those of you who haven't been following this closely, what's the dynamic in America? Is this not only related to rising interest rates, but also to the lack of vitality in the housing market?
JORDAN LEVY: Yes. So, on balance, the real impact on US interest rates is the most important factor affecting demand. In addition, California's net metering policy, which took effect earlier this year, has also changed. California is the largest market for rooftop solar. This has also hit demand.
And then there was this abnormal year, where energy utility prices were somewhat stable and in some cases even falling. This is the third blow to demand. So all three of these things are affecting demand in the US and adding to the interest rate problem.
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