Inverter manufacturing shifts to China; SolarEdge's third-quarter solar revenue hits record high, up 56% year-on-year

In the third quarter of 2021, SolarEdge's solar product revenue was $476.8 million, setting a new record.

Inverter maker SolarEdge posted record revenue for its solar division in the third quarter of 2021, despite a shutdown at its Vietnam factory due to the coronavirus pandemic, which affected the company’s ability to meet demand.

SolarEdge confirmed that total revenue for the third quarter of 2021 was $526.4 million, a 10% increase from the previous quarter and a 56% increase from the third quarter of 2020. This figure also represents a new quarterly revenue record for the company. Solar-related revenue also set a new record, increasing 11% sequentially and 55% year-over-year to $476.8 million, close to the high end of the company's guidance for this period.

The company's solar division's gross margin fell slightly to 36.6% in the second quarter of 2021. SolarEdge noted that the company's Vietnam factory output accounts for 20%-25% of its total inverter production, and despite supply chain turmoil due to the shutdown of its Vietnam manufacturing plant, the company's solar inverter shipments reached 1.9GWac during the reporting period.

SolarEdge initially revealed in August that its Vietnam factories had been ordered to shut down due to the country’s COVID-19 lockdown measures. The closure lasted for up to 12 weeks, far longer than initially expected.

CEO Zvi Lando said the factory eventually reopened last month and is expected to resume full production in mid-November. However, the shutdown caused a gap in the supply of inverter products in the fourth quarter, which will take time to replenish and increase costs due to supply chain upgrades.

Lando noted that delivery times for inverters are currently between 12 and 14 weeks.

The closure of the Vietnam factory prompted SolarEdge to reallocate manufacturing capacity to other regions, most notably China. Lando said that further costs were incurred in shipping components from Vietnam to China, and the resulting shift in manufacturing capacity to China resulted in a higher percentage of SolarEdge's products coming from jurisdictions subject to import tariffs. This quarter, about 47% of SolarEdge's products came from countries subject to import tariffs, namely China, compared to only 12% in the second quarter.

The disruption caused by the Vietnam factory shutdown prompted the company to accelerate plans to expand production capacity in Mexico. Lando revealed on a conference call with analysts that SolarEdge intends to meet most, if not all, of the U.S. solar market demand from the Mexican factory.

The impact of the Vietnam factory closure will continue into the fourth quarter, and SolarEdge issued guidance that its solar division's gross margin will decline to 31-34%. Lando emphasized that this margin squeeze will be temporary, and he also told analysts on a conference call yesterday that the company has so far resisted raising prices to restore margins.

Many solar component suppliers have raised prices in recent quarters as supply chain volatility escalates. PV panel prices are estimated to have risen by more than 25% this year. Last week, microinverter supplier Enphase Energy said it plans to increase prices again later this month, its third increase this year, as input costs become higher.

Despite the adverse supply chain environment that has impacted the global solar industry, SolarEdge issued very healthy fourth-quarter guidance, estimating solar revenue between $490 million and $515 million.

Lando highlighted that the company has received orders for approximately 4GWac of inverters to be delivered in the fourth quarter of 2021 and the first quarter of 2022, with more orders pending.