by Brian Eckhouse, Bloomberg
Residential-solar companies have been on a tear this year, thanks in part to renewable-energy critic Donald Trump.
Shares of panel makers and the rooftop developers that buy their equipment largely traded in a pack in recent years as clean power emerged as a new part of the energy industry. But the president’s much-feared solar tariffs in January prompted a clarifying realization by investors: not all solar companies are alike.
Sunrun Inc., the top residential installer, has more than doubled in value this year and rival Vivint Solar Inc. was up more than 30 percent through Monday, while panel makers have mostly slumped. The divergence is a sign that Wall Street is finally paying more attention to the nuances of the maturing industry.
“We’ve separated ourselves from the manufacturers.” Rob Kain, Vivint’s vice president of investor relations, said in an interview. “The tariffs have created that differentiation.”
It comes down to pricing. Tariffs made most panels more expensive in the U.S., threatening manufacturers. Installers largely are faring better in the trade war because panels are just one of their costs, and not even the biggest one — and because the tariffs weren’t as bad as feared.
Sunrun and Vivint showed they can better absorb tariff-driven cost increases, according to David Arcaro, an analyst at Morgan Stanley. Customer acquisition and installation — neither of which are tariff-sensitive — tend to be installers’ biggest expenses, not panels.
Manufacturers are more vulnerable to tariffs. Higher prices affect the economics of big solar farms that use thousands of panels, potentially crimping panel-makers’ sales. That’s a key reason why their shares are mostly down this year while rooftop companies are rising.
The gap between installers and panel makers widened in the second quarter when China unexpectedly slammed the brakes on development, creating a global supply glut. That’s dragging down prices, which is good news for buyers but bad for manufacturers like First Solar Inc., the biggest U.S. panel maker.
“There was never any earthly reason that there should have been a correlation between Sunrun and First Solar,” said Joseph Osha, a San Francisco-based analyst at JMP Securities.
Besides the China pullback, the rooftop rally has been buoyed by other unanticipated policies that presage growth. California in May mandated that all new homes have solar panels, starting in 2020. An April ruling by Florida regulators opened the door for Sunrun to lease panels to consumers. And the U.S. Internal Revenue Service in June extended a key federal tax incentive.
That’s helping attract new investors, including Chase Coleman’s Tiger Global Management, which is now Sunrun’s second-largest shareholder with a 13 percent stake.
“You saw a change in investor sentiment,” Ed Fenster, Sunrun’s executive chairman, said in an interview. “Investors began valuing” the growth potential of residential solar.
Now, the question is whether Sunrun and Vivint can keep it up. They’ve both dipped in the past month, as some analysts have suggested that rising interest rates may affect financing costs. Sunrun slipped 1.6 percent Tuesday to $13 at 3:21 p.m. in New York and Vivint fell 4.7 percent to $5.10.
Michael Weinstein, an analyst at Credit Suisse Group AG, thinks there’s room to grow.
“Investors can’t look away anymore,” he said.