Enphase CEO Sees 2 Ways Out of the Rooftop Solar Slump

“Our investors are correct,” he said. “They expected us to grow and to keep continuously growing, but we disappointed them.”

Enphase (ticker: ENPH) reported disappointing sales on Thursday, and projected an even more disappointing third quarter. The company now expects sales to fall about 20%, from $711 million in the second quarter to between $550 and $600 million in the third. Normally, sales rise in the third quarter, Kothandaraman said.

The problem is that sales of solar panels have slowed in several parts of the U.S., largely because high interest rates have made solar more expensive. In states with low electricity costs, such as Texas and Arizona, consumers have less incentive to install rooftop panels when they know they will have to pay higher financing costs.

Other rooftop solar stocks such as

SunPower

(SPWR) and

Sunrun

(RUN) are also down sharply this year. Enphase sells devices called inverters that convert solar energy into usable power, as well as batteries to store solar power. The installers and distributors that buy Enphase products have seen a slowdown in sales to consumers, so Enphase’s products are piling up in inventory. Enphase is cutting its sales targets because it doesn’t expect to sell as many devices to installers.

Kothandaraman said he expects Enphase is “at the bottom right now in Q3, and we think every quarter has the potential to be incrementally better than where we are today.” His projection comes with a lot of uncertainty, however, given that it isn’t clear how long interest rates will stay high in the U.S.

Enphase has at least two ways out of the darkness beyond hoping interest rates fall. For one thing, the company is working to expand faster in Europe, where its sales are still growing fast. In the second quarter, European sales rose 25% quarter over quarter, even as U.S. sales fell 12%.

“Europe is underpenetrated for us,” he said.

In the coming quarter, European sales may tail off because Europeans tend to take long holidays in August. But in general Enphase expects to expand faster in Europe and other countries than in the U.S.

Enphase can also overcome its slump by selling more products to each customer, Kothandaraman said. The company now makes about 10% to 15% of its revenue from batteries, and has seen increasing adoption in states such as California.

But its goals are much broader than that. Enphase is planning to become a key hub in an electrified home, creating software that will allow homeowners to manage things such as electric vehicle chargers and heat pumps.

“The name of the game is full home energy management,” Kothandaraman said.

Write to Avi Salzman at [email protected]