SolarEdge ramping up manufacturing in Mexico to reduce shipping costs, tariff impacts

SolarEdge shipped 7.2GWac of inverters last year. Image: SolarEdge.

Inverter manufacturer SolarEdge is increasing shipments to the US from a new production plant in Mexico as it looks to save on freight costs and reduce the impact of tariffs on imports.

It has begun to export residential inverters and optimisers from the contract facility this quarter, and by the end of the year the company expects that almost all its residential products ordered in the US will come from Mexico, according to management.

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“This will have a favourable effect on shipping costs, tariffs, working capital management and timely meeting the US demand and lead times,” SolarEdge CEO Zvi Lando said during a conference call with investors following publication of the company’s 2021 financial results.

After being affected by a COVID-related shutdown of a manufacturing plant in Vietnam in Q3 2021, the facility returned to normal operation in mid-November. Now the company is further ramping up manufacturing capabilities in Vietnam, which will be followed by additional growth in production in Mexico to supply commercial products to the US.

This will “dramatically reduce” the company’s expenses, said CFO Ronen Faier, as during Q4 2021 two-thirds of the products it shipped into the US were from China and subject to tariffs.

The new strategy comes after SolarEdge posted record 2021 revenues, with the company experiencing what Lando described as a “surge in demand” for its products, spurred by electrical power prices increasing globally and rising government and corporate focus on renewables deployment.

Revenues from the firm’s solar segment jumped 32% year-on-year to US$1.79 billion as it shipped 7.2GWac of inverters, up on the 6.1GWac of shipments in 2020.

“The global demand for solar energy across all segments and geographies is extremely strong and generating unprecedented demand for our products,” Lando said, adding that the company is particularly excited about strong momentum in the commercial market.

Lando said dynamics such as rising electricity prices in Europe, increased corporate demand for renewables and a favourable regulatory environment in markets such as Germany – where the new government recently announced aggressive PV growth plans – are driving demand for SolarEdge’s commercial solutions.

As a result, the firm’s commercial orders for delivery in 2022 had already reached 143% of total commercial shipments last year.

Ramping production to meet the surge in demand in the current supply chain and logistics environment is having an impact on both the firm’s top and bottom line as it prioritises expedited shipments, at times at the expense of its gross margin, according to Lando.

Q4 2021 gross margin from the solar segment was 32.8%, down from 36.2% in the same quarter of 2020.

During Q1 2022, the company expects its gross margin to be within the range of 28 – 30% and revenues from its solar segment to be US$575 – $595 million.

Conference call transcript from the Motley Fool.

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