Credit: Image source: Getty Images.
Image source: Getty Images.
How will customers buy smart energy?
Today, most of SolarEdge's energy storage systems use Tesla's Powerwall, and the SolarEdge inverter acts as the brains of the system. This would be similar to the role SolarCity's DemandLogic plays for SolarCity's Powerwall-backed systems. And that's part of the problem for SolarEdge. Tesla Motors trying to buy SolarCity, which would logically means the companies would use DemandLogic. Not only would SolarEdge lose a major partner, the power electronics or inverters are rarely a driver when it comes to sales of solar power systems today.
When most customers go solar, they choose a solar installer or maybe a solar panel manufacturer. The inverter, which simply transforms the direct current supplied by the solar panels into the alternating current the grid uses, is an afterthought. Why would a customer seek out a SolarEdge inverter installer to get its new control system rather than choosing the installer they'll actually be interacting with to build the rest of their solar-plus-storage system?
Customers aren't likely to demand a SolarEdge product, and in the future, partners may be leaning on the company less. SolarEdge has little bargaining power with large solar installers, who are developing their own fully integrated solar-plus-storage systems. SolarCity and SunPower are leading that charge, and could render most of the company's components obsolete or commodities in the next few years.
How SolarEdge hopes the market plays out
What could work in SolarEdge's favor are changes that have come to the solar market recently. Regional solar installers are gaining market share, and for the most part they'll be piecing together components from different suppliers rather than installing the type of fully integrated systems that SolarCity and SunPower are selling.
This could give SolarEdge, Enphase, and inverter supplier SMA a path to the market without owning the sales channel. But they'll still be reliant on installers choosing their product and customers wanting their control system. And with only one or two pieces of the value chain I'm not sure they can command business for long.
Can SolarEdge branch out?
Component suppliers haven't had a long history of value creation for shareholders in the solar industry because they rise and fall quickly as installers change their preferences. And with many companies trying to vertically integrate and/or design fully engineered solar systems rather than piece them together, I don't know where SolarEdge fits in the market.
It's a good idea for the company move into energy storage and control systems, but will it add to earnings long-term? That remains to be seen.
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Travis Hoium owns shares of SunPower. The Motley Fool owns shares of and recommends SolarCity and Tesla Motors. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
