Elon Musk's Connection to SolarEdge Casts Long Shadow on Stock

Elon Musk

Bllionaire and chief executive officer of Tesla Motors Inc Elon Musk.

Photographer: Krisztian Bocsi/Bloomberg
  • Biggest customer is Musk's SolarCity which has cut growth goal
  • CFO says market events `throwing shade' on company performance

For SolarEdge Technologies Inc., ties with Elon Musk are no longer something to brag about.

The Silicon Valley billionaire’s SolarCity Corp. is the biggest buyer of its components for photovoltaic systems. That turned SolarEdge into a darling of investors until its top client announced it would scale back installations of panels. Shares of the Israeli company that had soared as high as $42 are back down at $18, the price of their March trading debut in New York.

The broader concern is whether the solar industry can live without government support. The expiration of U.S. tax credits for the renewable energy source at the end of 2016 sparked a selloff that has engulfed SolarEdge, whose executives are now trying to assure shareholders that the company will continue to grow regardless of SolarCity’s troubles and subsidies.

“There is a lot of uncertainty in the market, and bigger events are throwing shade on what we see here,” SolarEdge’s chief financial officer, Ronen Faier told investors at a Goldman Sachs Group Inc. conference in New York last week. “What we see in the market is disconnected from our performance as a company.”

Beating Forecasts

He has a point. 

SolarEdge beat profit and sales estimates for each of the past two quarters. Revenue is forecast to grow 49 percent to $483 million in 2016, according to the average estimate of eight analysts surveyed by Bloomberg. It raised $126 million in March, the biggest initial public offering out of Israel this year.

Many Wall Street analysts back the company: seven out of eight recommend buying the stock, which they forecast will rally 77 percent in the next year.

Still, even those who are bullish on the company’s long-term prospects say turmoil in the solar industry is suppressing the shares. The Russell 1000 Energy Index has lost 17 percent this year, while SolarCity has plunged 46 percent. SolarEdge, based in Herziliya Pituach, Israel, is still keeping its head above water, up 1.5 percent year-to-date.

‘Subprime’ Curse

Back in August, hedge fund manager Jim Chanos dubbed SolarCity, whose chairman and biggest shareholder is Elon Musk, a “subprime” finance company. He said he’s betting against the stock because its business model of investing in rooftop solar and selling the output to homeowners under long-term contracts that could be broken is too risky. 

Last week, the company got a $113 million cash infusion from Silver Lake and top executives. Jonathan Bass, a spokesman for SolarCity, declined to comment for this story. SolarEdge executives weren’t available for additional comment.

What SolarEdge investors want to see is the company diversify its customer base away from the U.S. and SolarCity. By focusing on Europe and Japan, the company is doing just that, Chief Executive Officer Guy Sella said in a conference call this month.

Other considerations: Cheap coal and gas prices indirectly hurt demand for solar energy and SolarEdge is also locked in a “price war” with Californian competitor Enphase Energy Inc., said Jeff Osborne, an analyst at Cowen & Co. in New York.

“It’s difficult to make an earnings model if you don’t know what prices will be,” he said.

Yet even in a climate of fierce rivalry and uncertainty, SolarEdge has the kind of technology that allows it to chip away at costs and offset the potential loss of subsidies, according to Michael Morosi, an analyst with Avondale Partners in Nashville.

“As the low-cost provider, they stand well positioned to gain share over time,” he said.

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