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Why Solar Stocks Are Getting Pummeled

By Travis Hoium - Updated Apr 15, 2019 at 3:28PM

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2019 might not be good for solar companies, particularly in manufacturing.

The last week has been rough for solar manufacturers, particularly those with operations based in China. Canadian Solar (CSIQ 5.50%) reported earnings and guidance that left a lot of investors disappointed because it sees solar panel prices dropping in 2019. It looks like once again the solar industry is in for falling margins and weak profitability, a trend it can't seem to escape. 

Some of what we saw in the last week is predictable and some figures are part of a long-term trend. But that might be exactly why investors should be leery of some solar stocks in 2019. 

Solar and wind power generators in an urban environment.

Image source: Getty Images.

Lower prices hit again

If there's one trend that investors can expect to continue for the foreseeable future, it's the continued drop in solar panel prices. Since 1980, the price of solar panels has dropped 99% and 2018 was no different. Solar panel prices fell by about one-third last year and come into 2019 at as little as $0.30 per watt, depending on the panel. 

In Canadian Solar's guidance, the company said it would generate $450 million to $480 million of revenue in the first quarter on solar panel shipments of 1.3 gigawatts (GW) to 1.4 GW. Using the midpoint of both numbers, the company is generating just $0.33 per watt in revenue and that doesn't adjust for any project sales that may be included in revenue. 

Low solar panel prices will obviously squeeze margins and make it tough to report a profit at all this year. For Canadian Solar and JinkoSolar (JKS 4.83%), which also saw its stock drop last week and is another commodity solar manufacturer, 2019 could be a tough year. 

Check out the latest earnings call transcripts for Canadian Solar and other companies we cover.

Cascading impacts of panel pricing

Everyone in the value chain is ultimately going to be impacted by falling solar panel prices. First Solar's (FSLR 1.70%) stock dropped and results fell short of expectations in the second half of 2018 because of lower prices from competing solar panel manufacturers so First Solar had to lower prices in response. 

JinkoSolar's stock fell along with Canadian Solar last week and that's in large part because the company serves similar markets. What affects one will naturally affect the other.

We will even see falling prices having an impact on high-efficiency manufacturers like SunPower (SPWR 6.17%) this year because companies like Canadian Solar and JinkoSolar are investing in upgrades that will increase efficiency. The competitive forces never seem to slow down in the solar industry. 

Falling prices aren't bad for everyone

Dropping solar panel prices might hurt the profitability of Canadian Solar, JinkoSolar, First Solar, and SunPower in 2019, but it could help installers like Sunrun (RUN 4.33%) and Vivint Solar (VSLR). They buy commodity solar panels and install them on roofs, so any drop in prices is good for business. 

There are also manufacturers that buy components like wafers or cells and assemble them into solar panels. Canadian Solar and JinkoSolar purchase some components but make most themselves. SunPower has a product called P-Series, which uses commodity cells and assembles them into a panel that's slightly more efficient than competitors. Some of these panels are even made in the U.S., evading solar tariffs. 

Sometimes, what's bad for some solar companies is good for others. 

Ups and downs of solar will continue

The solar manufacturing business will continue to be a difficult business and 2019 might be particularly difficult because of falling solar panel prices. Investors shouldn't expect the trend to turn unless demand spikes globally. That could happen suddenly if policies change in a large market like China, and has happened in the past, but until demand drives higher prices, we shouldn't expect rising profits in solar manufacturing and stocks may be stuck in a rut as well. 

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Stocks Mentioned

Canadian Solar Inc. Stock Quote
Canadian Solar Inc.
$28.76 (5.50%) $1.50
JinkoSolar Holding Co., Ltd. Stock Quote
JinkoSolar Holding Co., Ltd.
$56.45 (4.83%) $2.60
First Solar, Inc. Stock Quote
First Solar, Inc.
$66.47 (1.70%) $1.11
SunPower Corporation Stock Quote
SunPower Corporation
$16.68 (6.17%) $0.97
Vivint Solar, Inc. Stock Quote
Vivint Solar, Inc.
Sunrun Inc. Stock Quote
Sunrun Inc.
$23.36 (4.33%) $0.97

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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