Things are not looking good for the solar sector. Solar stocks such as First Solar (NASDAQ:FSLR), Enphase Energy (NASDAQ:ENPH), and Sunrun (NASDAQ:RUN) have each tanked by over 20% in the past year. The challenges in the industry have caused the shine to dim on the otherwise buoyant solar stock industry.
One of the reasons for this downturn is a “supply glut,” where there is an oversupply of solar products in the market, leading to price pressures and reduced financial performances for these companies.
Tariff Troubles
Earlier this month, Mark Widmar, the CEO of FSLR, lamented that tariff exemptions on components are hindering domestic names from achieving scale. In an interview with CNBC, Widmar noted that nearly 30 to 40 GW of excess product has made its way into the U.S. market. The CEO has urged regulators to close the tariff exemptions on product imports.
Uncertain Environment
At present, solar panel prices in the U.S. are under pressure due to a plentiful supply of China-made panels in the country. While expectations of margin gains remain far from certain, the current demand scenario fails to inspire confidence in the sector. Last month, Sunrun reported a wider-than-anticipated loss for the fourth quarter. The company expects solar installations to decline by up to 5% this year.
Relentless China
Interestingly, the Chinese solar industry is also saddled with overcapacity. Companies are selling products at rock-bottom prices to survive the competition. This means the flood of cheap products from China may not abate anytime soon. Additionally, Chinese names such as Longi Green Energy and Trina Solar are setting up manufacturing presence in the U.S. This, in turn, could add further pressure on domestic companies.
Which Is the Best Solar Stock to Buy?
These larger structural trends could continue to weigh on U.S. solar names for quite some time. Meanwhile, the TipRanks Comparison Tool indicates the highest upside potential of 54.2% in Sunrun over the coming months.
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