Tesla Is Shaking Up One of the Hottest Areas in Solar Power - Barron's

Tesla is best known for its cars, but it still makes and installs rooftop solar... — Tesla is best known for its cars, but it still makes and installs rooftop solar systems.
Joe Raedle/Getty Images

Tesla has launched a new product in a critical area of solar power—inverters.

The devices attach to solar-panel systems and change the direct current they produce into alternating current, allowing them to be connected to the electrical grid. While that sounds like a mundane industrial part, inverters can be loaded with sophisticated technology. Stocks of companies that make them have been skyrocketing over the past year.

Enphase (ticker: ENPH) rose 571% in 2020, and SolarEdge (SEDG) rose 236%. Tesla’s entry into the market last week clearly spooked some investors. Enphase stock dropped 9% the following trading day, and Solardege fell 16%.

Tesla’s (TSLA) main business is electric vehicles, but it continues to make and install rooftop solar systems after acquiring SolarCity in 2016. That company was once the largest installer of panels in the U.S.

J.P. Morgan estimates that it held a 35% market share at its peak. It has since lost most of that share to competitors like Sunrun (RUN) and SunPower (SPWR), and now has a 5% share, according to the bank. Still, Tesla’s brand recognition is so strong that it threatens to upend any business it enters.

In the case of solar inverters, analysts aren’t convinced Tesla will really rock the industry. Its inverters are meant to hook up to its rooftop solar- tile system, and can connect to Tesla’s Powerwall battery systems. In the past, Tesla has used inverters from SolarEdge and other providers, which is likely why SolarEdge fell more than Enphase.

While Tesla will now sell its own inverters to its customers, analysts don’t think it will compete for market share in the broader industry. J.P. Morgan analyst Mark Strouse estimates that sales to Tesla make up less than 2% of Solaredge’s revenue, so the hit won’t be very large.

In addition, Tesla’ inverter appears to be less efficient than the ones made by competitors—a key differentiator for inverters. Tesla didn’t respond to a request for comment on the details of its system.

Strouse wrote that he sees little risk to the rivals’ revenues over the near term from Tesla’s move. “There may be risk if Tesla opts to compete with SolarEdge and Enphase for third-party installation business; however, given a relatively lower efficiency (similar to what other competitors have historically launched) and a lack of Module-level power electronics (MLPE) capability, we do not expect material share loss for SolarEdge or Enphase,” he wrote..

Credit Suisse’s Maheep Mandloi concurred. “We await additional details on the product, pricing, installer feedback, but our initial take is that Tesla’s offering replaces older string inverters and is not a substitute for microinverters and optimizers that work better in shaded conditions and provide granular monitoring and power optimization,” the analyst wrote.

Write to Avi Salzman at avi.salzman@barrons.com

Let's block ads! (Why?)