Solar stocks slammed as supply chain bottlenecks hit renewable energy sector

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Solar stocks fell on Tuesday, building on recent weakness, as companies warn of the impact of supply chain bottlenecks and parts shortages.

The space-tracking Invesco Solar ETF slipped 7%, taking its one-month decline to 15%.

SolarEdge was the biggest drag on the fund, falling 15%. The company announced its profits after the bell Monday night. While the company’s results have exceeded analysts’ expectations for a bottom line, SolarEdge has warned of margin erosion in the future through higher shipping costs.

“Ocean freight prices have increased by over 100% over the past few months and our pre-negotiated prices have gradually expired and exposed us to higher freight costs around the world,” said Zvi Lando, Managing Director of the company, when calling for results.

The company noted, however, that it had sufficient supply to meet demand in the second half of the year. This contrasts with competitor Enphase Energy, which said last week that its second-quarter shipments would be constrained by the global chip shortage.

Semiconductors are key components for battery storage and solar inverters. The shortage has also hit the auto industry, among others, with companies like GM and Ford cutting production at several factories.

SolarEdge’s weakness spilled over to the rest of the industry on Tuesday, as investors fear companies may not be able to keep pace with record demand.

Solar actions under pressure

Enphase and SunPower each fell more than 7%. Sunrun and Sunnova lost 10% and 8% respectively.

Sunnova released its first quarter results on April 28 with higher adjusted EBITDA estimates, and the company also said it had stockpiled parts in anticipation of shortage fears. Still, stocks have fallen more than 20% over the past week.

SunPower and Sunrun are expected to release their results on Wednesday.

Still, some Wall Street analysts remain positive about the sector, noting that despite short-term headwinds, the long-term outlook remains strong.

“We are encouraged by demand trends and believe long-term investors should buy weakness in equities ahead of expected improvements in supply constraints in the coming quarters,” JPMorgan noted.

The group was also hit by the market’s massive sell-off on Tuesday. The Nasdaq Composite was the loser among the major averages, plunging more than 2.6% as investors pulled out of high growth areas of the market.

The Invesco Solar fund gained 233% in 2020, largely outpacing the 16% gain of the S&P 500. For 2021, the fund is down 25% while the S&P 500 is up 10%.

– CNBC’s Michael Bloom contributed reporting.

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