Shares of residential solar stocks jumped early on Monday morning after SolarEdge Technologies (SEDG +6.97%) announced a major layoff. The industry has been under pressure for months, and this is finally a breaking point for one of the highfliers of the last few years.
Shares of SolarEdge jumped as much as 11.3% in trading Monday, while Enphase Energy (ENPH +2.73%) was up 11.1%, Sunnova Energy (NOVA +0.00%) jumped 13%, and Sunrun (RUN +5.87%) was up 11.2%. At 12:30 p.m. ET, the stocks had given back most of their gains and were up 3.3%, 3.5%, 5.2%, and 4.4% respectively.
NASDAQ: SEDG
Key Data Points
The big layoff
SolarEdge announced a 16% reduction in the global workforce, which amounts to 900 employees. The shocking number was a reduction of the manufacturing workforce by 500 employees.
As part of the announcement, the company said manufacturing operations in Mexico would be discontinued and there would also be reductions in China. CEO Zvi Lando said, "We have made a very difficult, but necessary decision to implement a workforce reduction and other cost-cutting measures in order to align our cost structure with the rapidly changing market dynamics."
The market sees this as a positive for SolarEdge's earnings potential because costs will be lower, but this is a warning to the industry overall.
NASDAQ: ENPH
Key Data Points
Solar energy's uncertain future
Third-quarter 2023 earnings results showed demand weakness across the solar energy market. That was due to California's net metering 3.0 policy, which made rooftop solar less economical. The rise in interest rates also didn't help.
There were some positive signs, though, with installers saying demand picked up in the back half of the quarter as California's installers and customers figured out how to sell solar in the market. It's also helped that interest rates have been falling for months, which should make projects more economical.
But if SolarEdge is laying off workers in manufacturing, they're seeing this as a more prolonged downturn than what they saw previously, and that could be a concern. Is this an industry problem or a SolarEdge-specific problem?
If it's a SolarEdge problem, layoffs aren't going to help demand but may keep the company profitable. And that would be the best interpretation for rooftop solar, overall.
If this is an industry problem, layoffs may be coming at more companies, which would be terrible for the industry. Either way, I have a hard time seeing this as a positive development, and that's likely why shares came back to earth later in trading.
The question for investors is, is this the bottom or is the market still collapsing? We won't know until earnings season starts in a few weeks, and shares will likely be volatile until then.
