SolarEdge (SEDG) shares fell around 14% on Wednesday after the company announced weaker-than-expected sales guidance for the current quarter due to a slowdown in residential real estate demand and rising inventory levels.
The maker of inverters that convert solar power into usable energy expects first-quarter revenue in the range of $175 million to $215 million, while Wall Street expects $373.2 million.
“Due to the abrupt slowdown in demand in the second half of 2023, we continue to face challenges from overall market dynamics as well as channel inventory levels of our products,” CEO Zvi Lando said during the fourth quarter earnings call.
Executives noted weakness across Europe and in the U.S. residential real estate market, where product sell-through – the amount of available inventory sold – fell 8% year-over-year.
“We do not expect any significant changes in the dynamics of the U.S. housing market until interest rates decline,” Lando said.
Higher rates have impacted the renewable sector because projects are capital intensive. The Department of Energy estimates that about 85% of residential solar installations in the U.S. are financed.
A slowdown in California, the largest U.S. solar market, also contributed to the current installation weakness. A policy change in the Golden State last year reduced the amount of money that is credited to panel owners for exporting excess electricity they send to the grid, eliminating a key incentive.
A visitor inspects products at the SolarEdge booth during the event at the Queen Sirikit National Convention Center. (Peerapon Boonyakiat/SOPA Images/LightRocket via Getty Images) (SOPA Images via Getty Images)
SolarEdge expects the U.S. commercial segment, which hit record highs in the fourth quarter, to continue growing as companies pursue net-zero commitments and take advantage of government stimulus from the Inflation Reduction Act.
The company expects a gradual improvement in installation rates in Europe for both residential and commercial sectors in the first quarter, as well as a reduction in inventory levels.
SolarEdge announced last month that it would cut about 16% of its workforce. The stock fell 66% last year as renewables came under pressure.
The Invesco Solar ETF (TAN) is down 14% year-to-date as headwinds continue across the industry.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.