Investing.com -- Enphase Energy Inc . (NASDAQ:ENPH) has been downgraded by RBC Capital Markets to "sector perform" from "outperform," signaling a cautious outlook on the company’s growth trajectory amid shifting market conditions.
As per analysts at RBC, the revision comes as the solar energy company faces increasing competitive pressures and market dynamics that are expected to slow its growth pace in 2024.
The analysts lowered their price target for Enphase to $100, down from $125, citing a revised valuation method and an expectation of lower-than-consensus revenue in the coming years.
The analysts flag a few key areas of concern for Enphase. “Increasing TPO adoption could favor competitors,” said analysts at RBC.
With interest rates remaining high, TPO systems, which often come with higher tax credits through the Inflation Reduction Act, have gained traction.
This trend could negatively impact demand for Enphase’s products, as the company's market share is more concentrated in non-TPO systems.
While Enphase managed to grow its share of the inverter market last year, mostly at the expense of SolarEdge (NASDAQ:SEDG), RBC suggests that this advantage may have run its course.
The company now faces increased competition from players like Tesla (NASDAQ:TSLA) and Delta, both of which have been gaining inverter market share.
Another potential challenge comes from Tesla’s latest battery offering. RBC estimates that about 6% of Enphase’s inverter installations in California are linked to projects that include Tesla’s Powerwall 2 batteries.
Should Tesla successfully transition customers to its newer Powerwall 3 model, Enphase could lose some of its inverter market share in the state.
While this impact is currently limited to California, RBC noted that it remains an additional hurdle for the company.
Battery demand, a bright spot for Enphase this year, may also start to cool. The company has benefited from strong demand for its IQ battery 5P, particularly in California, where the new Net Energy Metering regulations have spurred interest in solar storage solutions.
However, RBC suggests that this growth could slow as the market becomes more saturated and further share gains become more difficult.
Tesla’s Powerwall 3 could also pose a challenge in this space, as only about 20% of Tesla’s current battery sales in California are tied to the new product, leaving room for Tesla to capture more market share going forward.
Despite these headwinds, Enphase is poised to introduce new products in 2025, including a next-generation 10kW battery, a meter collar, and a new combiner.
RBC notes that these innovations could bring cost savings and create opportunities for Enphase to regain some market share in the backup power segment.
However, with the anticipated challenges in both the inverter and battery markets, RBC’s analysts expect slower revenue growth for the company in 2025 and 2026, forecasting revenues of about $1.825 billion and $2.05 billion, respectively — both below current consensus estimates.