Photo courtesy of Tesla. 

On Jan. 15, Tesla Inc. (TSLA) launched its Tesla Solar Inverter, and the news sent shares of Enphase Energy Inc. (ENPH) and Solaredge Technologies Inc. (SEDG) tumbling on concerns of new competition. Yet BofA Securities analyst Aric Li said Tuesday, Jan. 19 that investors should be comfortable buying the dip in Enphase stock.

Competitive Risks

One of the biggest risks to the long-term bull cases for both Enphase and SolarEdge is more competition in the module level power electronics space, Li said in a note. The two companies hold about 90% market share of the U.S. residential solar market, the analyst said.

Yet the new Tesla inverter is no direct threat to Enphase at this time, he stated. “Critically, the new inverter by TSLA is not a micro-inverter, with a lack of other micro-inverter competitors in the market (micro-inverter company SolarBridge, which was acquired by SPWR and later sold to ENPH),” Li said Tuesday.

Instead, he said Tesla’s inverter is more similar to SolarEdge’s, although Tesla’s product does not have an optimizer. “Overall, we emphasize much less read-through to ENPH relative to MLPE peer SEDG both from a product and go-to-market perspective.”  

The biggest potential impact of rising competition for Enphase could be pricing pressures. Li said he is embedding 7.5% annual price depression into his long-term model for Enphase. BofA has a Buy rating and $250 price target for ENPH stock.

Benzinga’s Take

Tesla’s solar business has struggled for years since the company was sued by its shareholders following its SolarCity buyout in 2016. Yet Tesla’s brand has a lot of value among clean energy supporters, so investors with exposure to Tesla’s competitors should keep close tabs on the situation.

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