How SolarEdge plans to increase its market share in Europe

Shares of SolarEdge fell this week after the company’s second quarter results showed an impact on margins from factory closures, higher transportation costs and currency headwinds from a weakening the euro.

But SolarEdge chief financial officer Ronen Faier said lower margins are now the price to pay for long-term growth in a market where demand is soaring.

“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 below the $730.7 million that analysts polled by StreetAccount were calling for.

The company’s non-GAAP gross margin was 26.7% in the latest quarter, compared to 33.9% in the same quarter a year earlier. For the current quarter, the company expects its gross margins to be between 26% and 29%.

Shares fell 19% on Wednesday as investors reacted to the slight guidance. The title regained ground on Thursday and Friday, but remains down 10% over the week. Over the past month, however, the stock has risen 17%.

Faier noted that around 47% of the company’s revenue comes from Europe, which means the company is quite exposed to a falling euro. Additionally, a factory in China had to close temporarily during the country’s strict Covid lockdowns, stalling production at a time when supply chains are already strained.

In an effort to fulfill orders on time, SolarEdge eventually opted to ship some goods by air, which is ten times more expensive than shipping by sea.

Company executives saw it as a savvy long-term business decision. In addition to building customer loyalty by meeting delivery deadlines, it is a way of maintaining market share in an ultra-competitive market.

“The market does not live in a vacuum,” Faier said, describing it as a “battle for market share.”

Europe: a key growth area

Growth in Europe is a huge opportunity for solar companies as the bloc strives to move away from reliance on Russian power. The European Union has drawn up plans to rapidly expand 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, according to Faier.

As electricity prices in Europe reach record highs, solar power is also a way for consumers to reduce inflationary burdens.

“You want to be very strong in those markets that are poised for very nice growth in the future,” Faier said.

SolarEdge is not the only company seeking to seize the energy crisis in Europe. Competitor Enphase saw second-quarter revenue in Europe jump 69% quarter-on-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% in the next few years, primarily due to European expansion.

Getting into a customer’s home is especially important as solar companies — including SolarEdge and Enphase — look to offer more products. As part of a whole-home electrification offering, setting up that first product can then mean that the customer uses the same company for a battery backup system and an EV charger, for example.

US climate package: a catalyst for domestic production?

The earnings season and the surprise announcement that Senate Majority Leader Chuck Schumer, DN.Y., and Sen. Joe Manchin, DW.V., have agreed to new climate funding rocked solar stocks after a period of poor performance. The Invesco Solar ETF is up 16% in the past month, and now in the green for 2022.

Faier said if passed, the package would bring much-needed stability to the market. The bill proposes to extend for 10 years the investment tax credit, which has been instrumental in the growth of the solar industry. The ITC was last extended in 2020 and was due to start phasing out at the end of this year.

The proposed bill, called the Inflation Reduction Act, also aims to boost domestic manufacturing. Faier said the bill’s incentives could make manufacturing in the United States economically attractive for the first time. The company currently has facilities in Mexico, China and elsewhere

Ultimately, he thinks the outlook looks good for the future as Europe’s energy crisis and rising electricity bills prompt consumers, businesses and utility companies to switch to solar. “We live in times that are good for businesses like ours,” he said.

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