Quick Update on $ENPH
ENPH 0.00%↑ reported Q3 revenue at $380.9 million, missing estimates by a modest 3%, but the real concern is their guidance for Q4. Management is guiding revenue between $360 million and $400 million, far below the Street’s expectation of $435 million. This significant miss on guidance is sparking worries that the slowdown is more than just a temporary blip. There were two big culprits that drove the stock lower; ongoing weakness in Europe and weaker-than-expected battery shipments in Q4.
The U.S. market, which had been a bright spot, saw a 43% QoQ increase in revenue. However, the boost was largely driven by the normalization of inventory levels rather than any real surge in demand. European revenues, on the other hand, dropped 15% QoQ, continuing a downward trend that’s been in play for much of the year. On the surface, the U.S. market looks like it’s stabilizing. Inventory issues have largely been worked out, and demand in California—thanks to NEM 3.0—has driven battery attachment rates above 50%. That’s a solid win, especially considering that Enphase dominates the state with over 50% market share. However, competition is intensifying. Tesla just launched its Powerwall 3, which comes with an integrated inverter. This could be a game-changer, as it offers a simpler and potentially cheaper alternative to Enphase’s microinverters. While Tesla has historically been more of a battery competitor, the Powerwall 3 integrates both storage and solar in a single unit, creating direct competition for Enphase’s bread-and-butter microinverters. The threat is real, especially as TPO adoption increases in the solar market. Enphase has historically been underweight in the TPO space, putting them at a disadvantage as more customers opt for these types of solar setups.
Europe remains a significant headache for Enphase. Revenues dropped 15% QoQ, and it’s not looking like a quick recovery is on the horizon. Economic conditions in Europe are deteriorating, and declining power prices are making solar less attractive as an investment. European consumer confidence is shaky, and while Enphase is trying to gain market share in less penetrated regions like the U.K., the overall landscape remains challenging. Estimates for Europe will have to come down to account for the ongoing weakness.
The battery buisness was solid in Q3 as they shipped 173 MWh of batteries, beating expectations as demand in California, where NEM 3.0 incentivizes customers to attach batteries to their solar systems, continues to be strong. However, the outlook for Q4 is less rosy. Management guided for a 13% decline in battery shipments, which is concerning and raises questions about competition from Powerwall 3. The expectation had been for continued growth, so the fact that Enphase is pulling back on guidance suggests there may be more competitive pressures at play. Enphase is banking heavily on new products to help them regain momentum. They’re set to launch the IQ9 microinverter in 2025, which uses gallium nitride (GaN) technology. This should help them boost power output while lowering costs, but competition is not idle and questions remain if this will be enough to maintain their market share. These products are still on the horizon, and until they hit the market, Enphase remains vulnerable to competitive threats.
In my previous post, I mentioned ENPH looked attractive under $90, but with estimates coming down significantly and new concerns about their competitive position, I’m hesitant to commit further. I did take a small tracking position around $80/share, but I’m holding off on making it larger until there’s more clarity.
While Europe’s performance is a concern, it’s not my primary issue. What really gives me pause is the competition, particularly Tesla's Powerwall 3, which integrates the solar inverter directly into the battery. This all-in-one design reduces components, simplifies installation, and cuts costs—making it a strong fit for TPO providers. In contrast, Enphase’s modular system, while more flexible and compatible with various solar setups, adds complexity and higher installation costs. The market is clearly shifting toward the TPO model, where Tesla’s streamlined and cost-effective solution is becoming a favorite, especially for those looking for an all-in-one system at a lower cost.
EBITDA estimates for 2026 have dropped from around $1.1B six months ago to just under $900M now, and I’m not convinced we’ve seen the end of downward revisions. Even if current estimates hold, ENPH is trading at just under 14x 2026 EBITDA—not exactly a bargain, especially in a commoditized market with rising competition. Until there’s more visibility on how Enphase handles these competitive pressures—particularly as we head into 2025—I’m keeping my position small. The new products could offer some upside, but execution will be key, and in the near term, I expect more challenges.
