How SolarEdge Plans to Increase Market Share in Europe

SolarEdge shares fell this week after the company second quarter results showed a hit to margins due to plant closures, higher transportation costs and currency headwinds due to the weakening of the euro.

But SolarEdge CFO Ronen Fire said the lower margins now are the price to pay for long-term growth in a market where demand is skyrocketing.

“We have demand that far exceeds anything we could plan, expect and even grow,” he told CNBC.

SolarEdge reported record second-quarter revenue of $727.8 million, slightly short of the $730.7 million that analysts polled by StreetAccount called for.

The company’s non-GAAP gross margin was 26.7% in the most recent quarter, compared with 33.9% in the same quarter the previous year. In the current quarter, the company expects its gross margin to be between 26% and 29%.

Shares fell 19% on Wednesday as investors reacted to weaker forecasts. Shares rebounded slightly on Thursday and Friday but remain down 10% for the week. However, the stock is up 17% in the last month.

Fire noted that approximately 47% of the company’s revenue comes from Europe, which means that the company is quite dependent on the falling euro. In addition, a factory in China was forced to close temporarily during the country’s strict lockdown measures, halting production at a time when supply chains were already tight.

In an effort to fulfill orders on time, SolarEdge ended up opting to ship some items by air, which is ten times more expensive than shipping by sea.

Company executives saw this as a smart long-term business decision. In addition to increasing customer loyalty by meeting delivery schedules, it is a way to maintain market share in an ultra-competitive market.

“The market doesn’t live in a vacuum,” Fire said, calling it “a battle for market share.”

Europe: key growth region

Growth in Europe is a huge opportunity for solar companies as the bloc struggles to move away from dependence on Russian energy. The European Union has outlined plans to rapidly expand the use of renewable energy through its REPowerEU plan. Germany alone is expected to triple its annual solar installation rate within two years, making the country larger than the US market, Fire said.

As electricity prices in Europe soared to record levels, solar power has also become a way for consumers to alleviate the burden of inflation.

“You want to be very strong in markets that are poised for very good growth going forward,” Fire said.

SolarEdge isn’t the only company looking to take advantage of Europe’s energy crisis. competitor enphase saw him Q2 revenue from Europe jumped 69% quarter by quarter.

Enphase CEO Badri Kothandaraman said he believes the company’s international division will grow from 20% of the company’s revenue today to around 50% over the next few years, largely driven by European expansion.

Getting into the customer’s home is especially important as solar companies including SolarEdge and Enphase race to offer more products. In the quest for whole-home electrification, getting this first product could mean the customer is using the same company for, for example, a backup battery system and an electric vehicle charger.

US climate package: Catalyst for domestic production?

Reporting season and surprise announcement that Senate Majority Leader Chuck Schumer, DN.Y., and Senator. Joe Manchin, DW.V., agreed to new climate change funding. shocked solar reserves after a period of poor performance. Invesco Solar ETF up 16% month-on-month and is now in the green for 2022.

Fire said that if the package is passed, it will bring much-needed stability to the market. The bill proposes to extend the investment tax credit, which has played a major role in the growth of solar energy, by 10 years. The last time ITC was renewed was in 2020, and his retirement was due to begin at the end of this year.

The proposed bill, called the Inflation Reduction Act, also aims to stimulate domestic production. Fire said the incentives in the bill could make US manufacturing economical for the first time. The company currently has operations in Mexico, China and other countries.

Ultimately, he thinks the outlook looks good going forward as Europe’s energy crisis and rising electricity bills encourage consumers, businesses and utilities to switch to solar. “We live in an age that is good for companies like us,” he said.