How SolarEdge plans to increase its market share in Europe

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

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

“We have a demand that is way beyond what 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 asked by analysts surveyed by StreetAccount.

The company’s non-GAAP gross margin was 26.7% during the latest quarter, down from 33.9% in the same quarter a year ago. 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 light guidance. The stock made up some ground on Thursday and Friday, but is still down 10% on the week. Over the last month, however, the shares are up 17%.

Faier noted that about 47% of the company’s revenues come from Europe, meaning the company has quite a bit of exposure to the falling euro. Additionally, a factory in China had to temporarily close during the country’s strict Covid lockdowns, halting production at a time when supply chains are already tight.

In an effort to fulfill orders in a timely manner, SolarEdge ultimately opted to ship some products by air, which is ten times more expensive than shipping by sea.

Company executives viewed it as a wise long-term business decision. As well as building customer loyalty by meeting deadlines, it’s a way to maintain market share in an ultra-competitive market.

“The market doesn’t 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 energy. The European Union has presented plans to rapidly expand renewable energy through its REPower EU Plan. Germany alone is expected to triple its annual solar installation rate in two years, making the country larger than the US market, according to Faier.

As energy prices in Europe reach record levels, solar power is also a way for consumers to ease inflationary burdens.

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

SolarEdge isn’t the only company looking to take advantage of Europe’s energy crisis. Competitor phase saw his Europe second quarter revenue up 69% room to room

Enphase CEO Badri Kothandaraman said he believes the company’s international division will grow from 20% of the company’s revenue today to about 50% in the next few years, mainly 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. In a bid for whole-house electrification, having that first product at the door may mean the customer uses the same company for a battery backup system and EV charger, for example.

US climate package: a catalyst for domestic production?

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 has shaken solar stocks after a period of mediocre performance. the Invesco Solar ETF it is up 16% in the last month and is now in the green for 2022.

Faier said that if passed, the package will bring much-needed stability to the market. The bill proposes to extend the Investment Tax Credit, which has been critical to the growth of the solar industry, for 10 years. The ITC was last extended in 2020 and was scheduled to start withdrawing at the end of this year.

The proposed bill, called the Inflation Reduction Act, also seeks to stimulate domestic manufacturing. Faier said the incentives in the bill could make manufacturing in the US financially worthwhile for the first time. The company currently has facilities in Mexico, China and other places.

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

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