Major solar stocks were down by double-digits today. That's not necessarily news considering the rest of the market is down by a significant margin as investors continue to adapt to the economic realities of the coronavirus pandemic. But there are some industry-specific concerns for investors to consider.
Shares of Enphase Energy (NASDAQ:ENPH) and SolarEdge Technologies (NASDAQ:SEDG) were down as much as 27.9% and 19.4%, respectively. Both growth stocks recovered sharply to mid single-digit losses after market open, but solar panel manufacturers weren't so lucky. Shares of JinkoSolar (NYSE:JKS) were down over 20% and were near daily lows as of 12:44 p.m. EDT.
There are several sources of macroeconomic uncertainty vying for the attention of investors right now. There are the jitters that come with major actions from the U.S. Federal Reserve, which just cut the benchmark federal funds rate to a target range of 0% to 0.25%. There's the unknown impact of the coronavirus globally, and especially in the United States, which has yet to face the worst of the epidemiological curve. And there's the latest batch of economic data from China.
The latest numbers from January and February show that China's efforts to contain the coronavirus outbreak within its borders led to steeper economic impacts than many expected. Industrial production fell by 13.5% in the first two months of the year, whereas analysts expected a decline of about 3%.
The Chinese industrial production metric includes manufacturing, mining, and utilities, which means companies with supply chains in the country are likely to be affected -- which means basically every industry. That's especially true for solar microinverter and solar panel manufacturers.
Enphase Energy sources certain components from China for its microinverters and energy management systems, although it commissioned a new manufacturing facility in Mexico in 2019. The site should ramp production throughout 2020 to help ease concerns about manufacturing delays from China, although there's only so much that can be done to deal with shortages of components fed into the Mexican facility.
SolarEdge Technologies manufactures its primary products in China, Vietnam, and Hungary. It opened a new facility in Vietnam in 2019 that is expected to reach full production capacity before the end of June 2020, although that timeline could be disrupted given the circumstances.
Meanwhile, recently acquired assets provide manufacturing sites in South Korea, albeit for lesser products such as lithium-ion batteries. SolarEdge Technologies also boasts sales teams throughout Europe (Germany, Italy, France, and several other countries) as well as in India, Taiwan, and South Korea.
The long-term growth opportunity for Enphase Energy and SolarEdge Technologies remains intact with or without the coronavirus pandemic. The industry, as with the broader economy, will surely take a hit, but demand for solar energy remains strong. And since microinverters are needed regardless of the brand of solar panel used, the two companies will be the fastest to recover.
A recovery should also be in store for JinkoSolar (eventually), although the trajectory might be a little different. The company's high-efficiency solar panels have lifted gross margins in recent years and captured increasing market share. That bodes well for the company's ability to come roaring back once the economic malaise passes, especially if weaker competitors stumble or the Chinese government throws a bunch of money at the solar industry as part of its stimulus package, but it could take some time to see results.
It's important for investors to be realistic. The worst numbers for Enphase Energy, SolarEdge Technologies, and JinkoSolar have yet to be published. There's likely to be more pain on the way -- and it will take time to recover -- but the long-term growth potential of the global solar industry remains strong. Humanity will make it through the coronavirus pandemic. The solar industry won't be far behind.