Enphase, a new full position

Reply from Saul (with his permission to post)

As far as Enphase goes, sure they may crater like any other company, and NEM 3 will surely hurt them some, but here are some other thoughts:

How long ago was California 20% of their business? I doubt it still is, as Enphase has been sending out constant press releases about how their installers are reporting accelerating sales in Nevada, or in Utah, or in Illinois, etc, not counting the EU which has been growing like mad. (See below).

Living in California, or elsewhere on the West Coast, and lots of other places where huge storms have been knocking out electricity with regularity, makes having your own electricity sound good.

Rising electricity costs will help them all over the world (even in California), and certainly in Europe, as having your own source of electricity, especially if you can store it up in your own battery, sounds very appealing.

And considering what this company has been accomplishing:

$710 million in FCF last year

$690 million in Adj Op Income

$647 million in Adj Net Income

$4.62 in Adj EPS

Adj Net Inc up 90% for the year

Adj Op Inc up 102% for the year

EPS up 92% for the year

Adj Gross Margin at an all time high last quarter of $43.8%, up from 40.2% the same quarter the year before

putting it all together they have a little room for some imperfection if it comes along.

See below, all from the last six months.

Enphase Energy Expands IQ8 Microinverter Deployments in Virginia

GlobeNewswireMon, Mar. 20

Enphase Energy Expands IQ8 Microinverter Deployments in Utah

GlobeNewswireMon, Mar. 13

Enphase Energy Expands IQ8 Microinverter Deployments in Illinois

GlobeNewswireMon, Mar. 06

Enphase Energy Expands IQ8 Microinverter Deployments in Pennsylvania

GlobeNewswireMon, Feb. 27

Enphase Energy Expands IQ8 Microinverter Deployments in Maryland

GlobeNewswireThu, Feb. 23

Enphase Energy Launches IQ Batteries In Austria

GlobeNewswireTue, Feb. 21

Enphase Energy and Lumio Expand Solar Technology Leadership Across the United States

GlobeNewswireMon, Feb. 13

Enphase Energy Demonstrates Bidirectional Electric Vehicle Charger Technology GlobeNewswireThu, Feb. 02

Enphase Energy Expands Solar Deployments in Brazil

GlobeNewswireMon, Jan. 30

Enphase Energy and Enerix to Expand Solar and Battery Storage Product Offerings in Europe

GlobeNewswireThu, Jan. 26

Enphase Energy Expands IQ8 Microinverter Deployments in the Netherlands

GlobeNewswireTue, Jan. 17

Enphase Energy Expands IQ8 Microinverter Deployments in Puerto Rico

GlobeNewswireThu, Jan. 12

Enphase Energy Expands IQ8 Microinverter Deployments in New Hampshire

GlobeNewswireMon, Jan. 09

Enphase Energy Expands IQ8 Microinverter Deployments in Arizona

GlobeNewswireThu, Jan. 05

Enphase Energy Expands IQ8 Microinverter Deployments in Colorado

GlobeNewswireWed, Dec. 21, 2022

Enphase Energy Expands IQ8 Microinverter Deployments in Florida

GlobeNewswireMon, Dec. 12, 2022

Enphase Energy Expands IQ8 Microinverter Deployments in Northern California

GlobeNewswireThu, Dec. 08, 2022

Enphase Energy Launches IQ8 Microinverters in France and the Netherlands

GlobeNewswireWed, Nov. 30, 2022

Enphase Energy Increases Home Energy System Deployments in Belgium

GlobeNewswireThu, Nov. 17, 2022

Enphase Energy, Inc. to Join the NASDAQ-100 Index Beginning November 21, 2022

GlobeNewswireFri, Nov. 11, 2022

Enphase Energy Expands IQ8 Microinverter Deployments in Oregon

GlobeNewswireThu, Nov. 10, 2022

Enphase Energy Expands IQ8 Microinverter Deployments in North Carolina

GlobeNewswireMon, Nov. 07, 2022

Enphase Energy Expands IQ8 Microinverter Deployments in Nevada

GlobeNewswireMon, Oct. 31, 2022

Enphase Energy and Infinity Energy Expand Solar and Battery Deployments Across the United States

GlobeNewswireThu, Oct. 27, 2022

Enphase Energy Expands IQ8 Microinverter Deployments in Hawaii

GlobeNewswireThu, Oct. 20, 2022

Enphase Energy and CREATON Expand IQ Battery Deployments in Germany

GlobeNewswireMon, Oct. 17, 2022

Enphase Energy Completes Acquisition of GreenCom Networks

GlobeNewswireTue, Oct. 11, 2022

Enphase Energy and Energiekonzepte Deutschland Expand IQ Battery Deployments in Germany

GlobeNewswireMon, Oct. 10, 2022

Enphase Energy and Gaslicht.com Expand IQ Microinverter Deployments in the Netherlands

GlobeNewswireMon, Sep. 19, 2022


Saul (who has absolutely no guarantees about how Enphase will doin the next six months or year.)


A few things I like, besides what other members already wrote.

  1. CEO Badri. He received his B.Tech degree from IIT India (like MIT here) and M.S. degree in materials science from U.C. Berkeley. He also attended the Stanford Executive Program in 2008 and holds eight U.S. patents. Seems he has very strong tech background
  2. Enphase’s comments on expanding from 5M to 10M capacity (that’s a double) in US 2023: we are working with the same 2 contract manufacturers and will take on 1 new contractor and the ramp up takes up to 6 mon. Will carefully recalibrate if demand is not strong. — so they have flexibility and less fixed investment capital input
  3. Tech integration: This is where I expect Badri’s tech expertise play out. They bought Solargraf recently to integrate software/app to best monitor and match power export. From their latest Qtr comments: “As the system complexity increases with solar, batteries, EV chargers and dynamic rate structures such as NEM 3.0, the tight coupling of Solargraf and actual product operation will maximize value to homeowners.”
  4. Margin: They say the battery has higher margin $ and will be good for installers. They also plan to keep some of the IRA (Inflation Reduction Act) credit

That’s a great point Saul. In California there are winter rain storms with high winds. I was just there visiting a friend and power was out at his house for more than 24 hours. In the Summer, there are wildfires which can cause the utilities to shut off the power. There are more and more people working from home and they need power and internet access to work remotely from home. Solar with battery backup is a solution that can keep people up and running during these times.



Thanks Gaucho, I didn’t even think about the people working from home and needing electrical security.


Lets not forget the recent domestic terrorist attacks on power stations! Being self contained and semi ‘off the grid’ is more and more desireable to the average homeowner. Its not just for fringe conspiracy theorists any more.


My thoughts below echo some of what has been discussed, but I would like to provide my perspective as well:

In 2019, I bought Enphase shares for as little as $15. After a year, I sold my position due to worries growth couldn’t continue. I was wrong (so far).

Yes, solar energy is the future.

Now, solar and wind energy cost less than any other source. Nuclear energy is getting more expensive—partly due to huge costs to dismantle facilities and store radioactive waste.

Is solar energy a good investment?
The market thinks so now. But for how long?

Companies that offer something hard to copy have “pricing power” and earn high margins, like Apple.

Energy companies won’t have this advantage long-term. Solar energy, hydrogen, and other commodities can’t earn high margins indefinitely.

Due to more competition and easier production, prices will sink. Margins will follow.

What does this mean for stock prices? And why do most energy companies pay dividends regularly?

Before every investment, I ask myself two questions:

  • Do I believe this company has a high chance of maintaining high growth and improving margins in 1+ years from now?
  • And if so, can I imagine holding a 20% allocation confidently at some point?

I understand chasing growth rates for a few quarters (or even years if all goes well). But I wouldn’t feel confident. I need to believe in a company’s future. I still feel confident in Snowflake, Cloudflare, and even DataDog, despite slowing growth that I think is temporary.

For a company like Enphase, I can’t answer these questions with enough confidence. Therefore I would never hold a big position, which moves the needle.

That said, I believe Enphase and Solaredge are the best companies to invest in solar, since they offer microinverters instead of building solar panels or being an installer.

Please note, this is just my opinion. I wish all Enphase holders the best outcome and I could be wrong, as I was for over 2 years on this.

Source: Why did renewables become so cheap so fast? - Our World in Data


May I suggest you are using the wrong perspective. Growth does not happen in a vacuum. It’s not Enphase growing on its own, it’s the adoption of renewable energy to displace fossil fuels. It started a long time ago, I had solar panels and a wind turbine on my sailboat 25 years ago but it was lithium, battery technology, battery storage that accelerated adoption by overcoming two hurdles, that the sun does not always shine and that the wind does not always blow.

How long will the transition take? A century? It started some three decades ago. It might have three decades of fast growth and three more decades tapering off. Growth in Nature happens along the sigmoid or “S” curve. The upper limit is the Total Addressable Market (TAM). The bottom curve happens somewhere around 15% adoption and the top curve somewhere around 85% adoption. Growth investors want to ride the middle part of the “S” curve. That’s the opportunity Enphase has. It’s their job to stay ahead of the competition.

Denny Schlesinger



Wow, Denny, that was a very nice post, and gave a long term S curve perspective. Thanks.


In contrast to some others here, my main thesis with Enphase is not solely based on their microinverters. The real deal is their lead in building an ecosystem as an „All in One solution“.

I see it completely different mooo. Apple‘s main product, the Iphone, was in itself not very hard to copy. From a hardware perspective, especially in comparison to the high price, there where competitors with faster/better hardware. Their products all have high quality hardware but are not way above the competition.

What really separates them is the simplicity due to their intuitive software + UX and the ecosystem they build around. Software, services and a lot of additional products from earpods to watches. That‘s why people are willing to pay the higher price and almost never leave the ecosystem once they are in.

I want and can see the same future for Enphase. A highly trusted brand, high quality core products, intuitive and simple software, services + an ecosystem from batteries to EV chargers. The moat and pricing power will come from the superior ecosystem, not from the hardware.



I am watching Enphase, but am not yet in. One thing I am hoping to see (and that maybe exists and I have missed) is government contracts–federal, state, and possibly local.

I live in Massachusetts. When I lived on Cape Cod, I put solar panels on my house. I did not pay a dime for them and merely got a lower rate on my electrical bill. Why is that?

Energy utilities in Massachusetts, by law, must have a certain percentage of their energy produced by renewable sources. This results in large solar and wind farms, and I had sales people at my door frequently trying to sell me some plot of a nearby solar farm that I could rent to reduce my electric bill. But then another company came to my door.

While I’m not exactly sure who is doing the hunting (state or private companies), my house had been identified as one that could put a lot of solar power into the grid if I had panels on my roof. So much so, in fact, that I could have a full solar installation free on my house and get the same reduction in electricity as those who rented or bought panels, if I agreed to let the state use my house to help meet the requirements of x% of renewable power from the grid. No purchase, no lease, no installation charges, nothing. If my roof passed inspection before the panels were installed, they would also guarantee my roof for 20 years. I had to maintain an internet connection and have an up-to-date electrical system. That was it.

The only cost I might incur was if I sold the house to someone who did not want the panels. The company would not pay for removal. I did sell my house in 2020, but the new person wanted the panels so they took that over and it never cost me anything from start to finish. With the deal, I could not cover more than 100% of my electricity cost. Anything extra that was generated went to the powers that be–not sure if the profit went to the state, the installer, or both.

I could not, however, disconnect my system from the grid and use it only for myself. So, if the power went out, having a solar system on my roof would not help.

My brother, who lives in New Hampshire, put Tesla panels on his home last summer. No subsidies from the state, cost a lot, but they’re his. It was a hassle from start to finish with equipment and labor delays, and his electric bill is now more than double, which he can’t believe is right, but neither can he get through to customer service.

I tell that story to point out the kind of subsidies and options that could easily change the game for companies who are selected by federal, state, and local governments to meet green energy targets that must be met if we are to avoid spending our final days on Mars with Elon.

Getting your own panels is possible; and may be the only option in some places. But we’re still a good way away from making it easy and affordable for the average person to put up panels and make the switch without government subsidies and help.

I see a tipping point coming for solar. We’ve already tipped in terms of the climate itself; but there will be a moment when the stars align for solar–maybe around a program like in Massachusetts or elsewhere, maybe from an as-yet-unknown company who invents a better battery or other storage option, maybe in solar shingles or some other breakthrough. Will that be Enphase? I don’t know. The tailwinds are literally gale force for the renewable market, and at least some states (and the IRA) are willing to step up their game. I want to see who gets those contracts. That’s when I think mass adoption will occur.



Maybe that company already is Enphase !! Well at least to a certain extent. More explanation below.

This thread has a lot of useful information, but the revolutionary nature of its IQ8 micro inverter I think is still underappreciated.

Before IQ8 - the dirty secret about most solar panels is it needs the grid to be functional. What it means is your solar panels in isolation without a battery backup are useless in the event of a grid outage when you most need it.

One of the biggest questions homeowners, especially those in California, have for solar installers is: “Will my solar system power my home when the power grid goes down?” And, each time, solar salespeople have to scramble to find a digestible answer without losing integrity. The reality? Unless you pair your solar panels with battery storage technology, then no…

Recently, a huge ice storm hit Texas, causing a state-wide energy failure. As a result, even homes with solar panels installed on their roof lost access to electricity, unless they had backup storage capabilities.

With the Enphase IQ8, the microinverters would still have functioned by having the ability to limit energy capture to that which the home consumed.

Everything would have been different if Texas homeowners with solar systems had this type of technology. They would have been some of the only people with access to power, besides those with generators or backup storage.

While the Enphase IQ8 microinverters can’t compete with batteries in their ability to store energy and pull on it when the panels are not creating electricity, they allow for homeowners to generate and consume solar power even during grid outages.

I highly recommend TJ Roberts articles / blogs to truly understand the revolutionary nature of Enphase technology. Now not all Seeking Alpha articles are reliable, but the author himself is a solar installer and his conviction has been corroborated by other installers and performance of Enphase business.

Link to one of his write up on Enphase:

Some other technology advantages (as I understand) I will note below. (This is not an exhaustive list by any stretch)

  • Micro Inverter technology is safer and does not have a single point of failure unlike the string inverters. Even SolarEdge DC optimizers, while superior to string inverters, have a single point of failure and have had reliability issues.

  • Micro inverters, while more expensive, have less time to install and lower maintenance cost. Enph management has been laser focused on cutting down installation time and have largely negated the cost disadvantage that micro inverters had. Badri talks a lot about replicating the ease of installation with Enph batteries.

  • Enphase technology is modular. I can start with 4 panels to get some minimal backup and build over time. Especially with the advent of IQ8 I think this thing can become popular. Have a few basic panels with a small battery / generator installed and with Ensemble ensure critical appliances are kept powered on.

The differentiation in their battery products at this point is not of the same order as with IQ8. But Enph management is laser focused on this aspect. Some salient features of this technology:

  • Enphase batteries (Encharge) are source agnostic. They can be coupled seamlessly with panels, generators or grid all at the same time. From what I understand this is a pretty big deal. It negates the need of a more expensive install/ solutions which will still not be so seamless.

  • Because of the sunlight backup that IQ8 can provide, you can opt for a smaller battery size reducing the overall cost of the solar system. In most parts of the developed world, outages are far and few in between. A basic battery with the flexibility to direct power to appliances via Ensemble app in times of outages will suffice. In addition generators can be coupled to Encharge. Backup generators at this point are less expensive.

  • They are safer. They have opted for a very safe chemistry.

  • They are AC coupled and do not have a single point of failure.

  • They provide greater modularity.

  • The next generation to be released this year will reduce installation time and provide superior peak power (essential for startup of some appliances).

  • If there is a grid outage, the transition to alternative sources of power is seamless. Users or appliances will not even notice it.

The potential for Enph to transition to a full energy management solutions provider with superior hardware, software, user experience of the micro-grids has been correctly noted.

I see another huge potential. MLPE (Module Level Power Electronics) is emerging as a category in itself with Enph the clear leader. The advent of wireless technology saw the rise of Qualcomm. Enph has the potential for something similar in the MLPE space. As others have noted ASIC architecture is not something easy to replicate. Besides, TJ Roberts narrates in his articles, competition has tried and failed in the last decade.

I have been a long time holder of Enphase since late 2019 and early 2020. On a whim I was researching solar panels to install for my home. I did not install solar panels then, but ended up buying Enphase stock. The trajectory of the technology and products Enphase was creating and its rapid increase in market share at superior gross margins was too compelling.

As has been rightly noted, solar has largely been a commoditized business. But Enphase has managed to carve a niche in this commoditized business as evident by its superior gross margins, profitability and rapidly increasing market share. In the US market, in just a few years Enph has gone from single digit market share in the residential inverters to being the dominant player. It is worth noting they are just starting in Europe and internationally. In fact IQ8 inverters will be shipped outside of the US only this year. I fully expect them to replicate their success in the US elsewhere. In the near future growth will come not just from secular growth of solar, but also enph meaningfully increasing its market share.

Finally I will note, Enphase is not yet a consumer brand. When someone shops for solar, they go by the quotes various installers provide. I think this has the potential to change in time given the above advantages. This should be a catalyst for an even stronger moat.


From Enphase CEO Letter to Shareholders Year 2018


Previously in 2017, after some hypergrowth the company got into a tight capital situation, with only about $160M cash on hand (they have $1.6B Q4 2022). Then in came outside investors and a management shuffle. Here is the new CEO Badri comments:

• the company has undergone a major strategic transformation moving from “growth at any cost” to “profitable growth.”
Software, semiconductor and power electronics expertise are central to our strategy.
• Our target is to achieve a worldwide NPS of 60% or higher in 2019 (They ended up growing NPS from 37 exiting 2018 to 52, 60, 69 and 71 in subsequent years)
• However, we did not achieve the third priority, which was gearing up for the launch of our Ensemble™ Solar and Storage technology. The promise of our grid-agnostic solution, including the IQ 8 microinverter. The software and hardware complexities are more challenging than we anticipated


2019 Enphase CEO Letter

• our core differentiation – semiconductor core, software enabled, and Ensemble™ technology – all built on a distributed architecture, which in turn delivers high quality, scalable and easy to support solutions
Distributed architecture is the norm Our co-founders, Raghu Belur and Martin Fornage, built their careers in the telecommunications industry and strongly believed in the concept of a “distributed” architecture
• It will help us build the most flexible, efficient, reliable, and cost-effective power system available. This is the reason why Enphase has designed its microinverters based on a high-speed digital semiconductor architecture with bi-directional communication
Both our solar microinverters and battery systems are intelligent end points and make autonomous decisions
• This pursuit of the ASIC approach has paid Enphase big dividends, as it is efficient, scalable and cost effective for our microinverters. In every microinverter generation, we have reduced the component count by incorporating more functionality into the ASIC.
• Today, Enphase microinverters are deployed in more than one million installations which send real-time data back to the Enlighten cloud system. In the past few years, we have enabled customers to monitor their own consumption through the Enlighten mobile app. Enlighten collects as much as 3GB to 4GB of data per day, which is invaluable to our customer service team to monitor and determine the health of the microinverters should issues arise
• Finally, the communication between the microinverter system and the cloud is bi-directional. This allows us to future-proof our systems by enabling the remote upgrading of
our microinverters (usually solar system has 25 yr life)

• One of Solar’s biggest challenges is that it is “grid-tied.” This means that for solar systems today, if the grid fails or is off-line, there will be no production out of the solar system, even if the sun is still shining. To address this limitation, we invented Ensemble technology, an energy management technology that is completely grid agnostic.
• Our Encharge storage system represents a transformative opportunity to increase our revenue potential per home from approximately $2,000 to $10,000
• If there is one thing we could do better, it is getting new products out faster.


2020 CEO Letter to Shareholders


  • In July 2020, we introduced to customers in North America our Enphase Storage system, featuring our Ensemble™ energy management technology, which powers the world’s first grid-agnostic microinverter-based storage system. The Enphase Storage system provides resilience in the face of natural disasters and grid outages, ensuring that a home can be powered even during extended periods of inclement weather, delivering energy independence and peace of mind.

  • Manufacturing flexibility and discipline: due to pandemic, we cut our manufacturing targets in Q2’20 and then had to quickly ramp back up to meet the surge in demand in Q3’20 and Q4’20. Our operations team did an excellent job flexing manufacturing

  • Customer Centric: By the end of 2020, we were closer to achieving our target of less than 500 defective parts per million (DPPM), which translates to a failure rate of less than 0.05%




Supply Chain Challenge
• Supply chain shortages impacted almost every business. We resolved key supply issues that prevented us from ramping and went from strength to strength on solar microinverters. We started to ramp on battery storage systems in the U.S. throughout the year. The realization that our systems are now in the path of power with batteries caused us to step up our field support to installers as well as institute 24x7 customer service. We released IQ8TM Microinverters which can form a microgrid during a power outage using only sunlight, providing backup power even without a battery. We made four acquisitions during the year, three of them focused on software and services for our installers

• We were tight on semiconductor gate driver chips and application-specific integrated circuits (ASIC chips) for our microinverters in early 2021, but recovered quite well by qualifying more sources and working closely with our foundry partners. For batteries, we experienced global logistics challenges with a sharp increase in ocean container costs coupled with port constraints causing long lead times of 14-16 weeks

• So we added a second fully automated line earlier in 2021 at our contract manufacturer in India, and a fully automated line in Mexico in Q4 and a flex site in Romania serving Europe market

Financial Management: getting cheap capital, buy back undervalued stock

  1. In March 2021, we successfully completed the issuance of green convertible notes that resulted in net proceeds of approximately $1.2 billion. The terms of this capital raise were some of the most favorable to an issuer in history
  2. We repurchased approximately 3.2 million shares in 2021 for a total of $500 million dollars with an** average price of $155 per share ** (hey, this could be a yardstick for their IV). Taking a page from Buffett’s playbook, we engage in opportunistic share repurchases if we believe our share price is less than a conservatively calculated intrinsic value.**

Vision: • exciting to see that our transformation from a solar company to an energy technology company is starting to happen

  1. • The brain of the semiconductor-based microinverter is our proprietary ASIC which enables the microinverter to operate in grid-tied or off-grid modes. This chip is built in advanced 55nm semiconductor technology with high-speed digital logic and has super-fast response times to changing loads and grid events
  2. • The IQ8 ASIC, what we call Swift, is approximately 1000x faster than the IQ7 ASIC, and enables Sunlight BackupTM, allowing solar systems to convert the available irradiance into usable energy, even in the absence of the grid. We also expect to finalize our architecture on IQ9 microinverters and the next-gen IQ batteries
  3. • Electric Vehicles (EVs) in the U.S. are growing at a compound annual growth rate (CAGR) of 40%, while in Europe they are growing at 25% from a larger baseline. The charging of EVs will require more solar and storage because the grid does not have the capacity to serve the increased demand

I started to look at Enphase this weekend. Overall it looks like its in a beginning of a long and durable S-curve.

One part that kinda makes me a little nervous is its pricing and if it will run into any margin pressure to stay competitive. I tried to get a quote from Enphase and Tesla for almost a similar system. The Enphase solar quote came in at approximately $1000 extra which was surprising(Tesla had a slightly better wattage for both solar panels and battery).

I did little research and one thing I realized is that the Tesla system is not using micro-inverter technology, so it might be a better system for certain homes with shading problems, but not really sure how much difference this makes for a normal home.


I installed a solar system in 2020 and expanded it in late 2021. The results have been very good so my neighbors all got quotes from the same outfit that installed mine and asked for my help. Coincidentally, ENPH was being bandied about this board. As I researched ENPH and read some of the remarks elsewhere in Fooldom that mentioned the huge advantage ENPH had because microinverter technology could produce optimal results over the competing string and central inverter setups, I was confused because I knew I had a string setup, but had the ability to see electrical output on a per panel vs. string basis.

Turns out, there are three competing technologies - string (cheapest and least flexible), string plus micro optimizers (offsets disadvantages of string only setups) and micro inverters ( most flexible, ENPH uses). So I called my solar outfit and asked if my neighbors were getting a microinverter system. The answer was yes. I voiced my concern about my system having old technology after just a year (I did not know about the micro optimizers at that point). I was told that the reason I could see individual panel output was due to the micro optimizers and my system was preferable to a string only system.

I then asked specifically about ENPH and was told “to be honest, we have totally switched over from Solar Edge to ENPH from top to bottom.” Why? The micro inverters were part of the story, but another important consideration was related to transporting DC current in the house. Building codes vary, but in our locale, DC current needs to be shielded with more expensive conduit than AC current. Since micro inverters convert DC to AC on the roof, it simplifies the installation process. Finally, the increased cost of micro inverters vs. micro optimizers is offset by not needing the central inverter in a micro inverter system. As ad15 pointed out, the micro inverter or micro optimizer systems are more expensive than a straight string only setup. However, unless all panels get the same exposure all day long (an unlikely scenario), these micro systems are preferable. Myself, I have three sets of panels and there is variability in exposure among the panels within each set owing to orientation and things like vent stacks and chimneys.

This boots-on-the-ground research, in addition to the excellent discussion above, led me to take a position in ENPH.


There is another advantage to micro converters, and this is exploited by Enphase although it has no current direct impact on earnings. (Did you see what I did there?) This advantage is that the micro converters lend themselves to a bid/ask market based transfer of energy. The Enphase system has the ability to “price” loads and deliver electricity to the highest “bid”. These can be actual bids or pseudo bids.

In other words, you oxygen generator that you need to breath can always place the highest bid, the grid the lowest. Or, if the neighborhood is on a micro grid, and you battery is full and your car is gone, you neighbor can bid on your electricity, maybe even buy not just your solar panel but you battery storage also. If I remember correctly, Enphase has already installed grids like this. But wait! There is more! With the new laws in California, Enphase is in a technical position to push this type of market much further. I have no idea if they have the political clout or the business savvy to monetize this advantage, but it is there.

Finally, Enphase has started up and it pursuing commercial markets. Now I DO NOT KNOW, what the cost of an Enphase storage system is, but years ago, based on 12 cents a kilowatt hour from the grid and the cost of maintaining back up generators and 48 volt telecommunications batteries I figured that a solar plus storage system where the storage was 100 dollars a kilowatt hour installed. (Last I checks, about a year ago, this was 800 dollars a kilowatt hour for a residential system) a business could offer to provide all electricity and power redundancy for most cell sites and make save the telecom companies a lot of money and put a lot of money in their pockets.

With California’s high electric rates, mild weather and with Enphase shaving commissioning time they might be on the cusp of blowing this space up.

How big is this? A legacy cell site, not the new 5g sites, consumes between 2000 and 5000 kilowatt hours per month for the equipment alone, this does not include environmental loads. This load is a continuous load. Back up generators are generally only good for about 100 hours before they need human attention. Fuel, oil, or unexpected maintenance. These generators are currently strictly an expense, there is no revenue generated by them. The same for the telecommunications battery plants. They are generally engineers to provide 4 hours of back up power. They can last 20 to 40 years, but they are only engineered to cycle 300 times. Again, these are a pure expense item.

If a telecommunications company could contract this out, even if they had to write a check monthly, they would be way ahead of the game. The best I can tell, Enphase is moving into some type of this business.

A quick search did not turn up the number of cell sites in California, but it did turn up about 400,000 in the USA. Assuming 5 percent of those are decent candidates in California, this market segment alone would represent 20,000 units.

Maybe not huge, but this is the low hanging fruit.



Hey Denny!

Someone is hoping to meet up with you: Heading for Portugal - #2 by XMFRob

He is no fool who gives what he cannot keep to gain what he cannot lose.


This Enphase thread is 40 posts long, so perhaps I am beating a dead horse here. But if people are interested in one more take, here’s what I have:

What does Enphase do?

Enphase, per the investor relations page, “is a global energy technology company and the world’s leading supplier of microinverter-based solar-plus-storage systems.”

Jargon alert - what is a “microinverter”? A microinverter is a plug-and-play device used in photovoltaics, that converts direct current (DC) generated by a single solar module to alternating current (AC). The output from several microinverters can be combined and often fed to the electrical grid.

Enphase investor relations continues, “The Company delivers smart, easy-to-use solutions that connect solar generation, storage, and energy management on one intelligent platform. Its semiconductor-based microinverter system converts energy at the individual solar module level and brings a system-based high-technology approach to solar energy generation, storage, control, and management.”

In my own words, the company enables many pieces of the “solar energy experience”. Their microinverters help you generate solar electricity, their batteries help you store it, and their software helps you manage the system as a whole.

Financials and Why I’m Interested

Why is this stock interesting to me? Its past and recent financials are nothing short of phenomenal. Its Q1 2023 revenue is expected to be more than double its Q1 2021 revenue ($740 million vs $300 million). And its Q4 2022 revenue was more than 6x higher than its Q2 2020 revenue. I did a little cherry picking there, but in general it is clear they are enjoying break neck revenue growth.

I mentioned earlier Enphase is GAAP profitable. GAAP profits are up 91% YoY for its most recent quarter to $311 million, and roughly triple what they were in 2020. Free cash flows are strong as well, with FCF’s of $237 million, up 183% YoY and orders of magnitude higher than they were a few years ago.

And the icing on the cake is that gross margins have improved tremendously over the last six years. In 2017, gross margins were a measly 13%, by Q1 2020 they had improved to 39.5%! And most recently, at the end of 2022 they were 44%. I don’t think we can expect more huge margin increases, but nevertheless the company is scaling very impressively.

And a quick look at leadership: I like founder CEO’s with large insider holdings of their own companies, and while CEO Badri Kothandarama is not the founder of Enphase, he has a 1.8% stake in the company. At the company’s recent $25 billion market cap, his stake is worth $500 million, quite a few reasons for his interests to be aligned with shareholders! Additionally, Badri is an accomplished engineer with more than a couple of patents under his belt.

What are the risks?

Although I see a lot to like about this company, I think a lot more caution is warranted than with other companies that I typically invest in, because this is very much not a company I typically invest in. There are a number of risks I’d like to know more about before I would want a concentration in Enphase.

Although software plays a part in the company’s business, the key part of their business is their creation of widgets, in this case the microinverter and the batteries. This means there is risk related to:

  1. Raw materials - it takes many different suppliers and materials to make microinverters and batteries. Some of the minerals used by Enphase’s suppliers are “conflict minerals”. According to google, a conflict mineral is when “armed groups use forced labor to mine minerals, and they then sell those minerals to fund their activities, such as to buy weapons”. This poses investment risk, increased government intervention risk, as well as ethical concerns. I’m not here to shame anyone for buying a stock, but I would advocate that if this stock turns into a home run, consider donating some of the proceeds to a charity group that focuses on those affected by conflict minerals.

  2. Labor risks - (Enphase relies heavily on contracted labor to do manufacturing).

  3. Supply chain - this was all people talked about in 2021 and early 2022 due to the pandemic, but so far this year, it has not been a notable issue.

And because this is an energy related investment, there are also risks related to:

  1. Commoditization of solar energy - Energy being a commodity, costs should come down over time, which can erode margins. People have to be able to afford energy, unlike, say iPhones, which are not a basic necessity and so can charge whatever they want.

  2. More viable energy sources - (cheapening of natural gas, more availability of nuclear, etc) can cause a decrease in the relative value of solar energy.

  3. Unfavorable changes in government policies , such as removal or lessening of subsidies or an increase in tariffs (both domestic and abroad). Enphase found itself affected by the Trump tariffs (that Biden largely continued) intended to punish China for unfair trade policies. Enphase has also benefitted from the IRA (inflation reduction act, which might sound a little confusing - why would Enphase benefit from inflation reduction? Because a lot of the bill had nothing to do with inflation). Benefits could be diluted or taken away entirely if politicians unfavorable to green policies get voted into office in the next couple of years, or if the supreme court finds some or all of the IRA to be unconstitutional.

Enphase will also likely be negatively affected by California’s latest net metering policy, NEM 3.0, despite the company saying it will be a positive. I have more details on this in the conference call excerpts section towards the bottom of this report.

  1. Geopolitical risks , related to and perhaps a continuation of #7 above**,** including a deterioration in relationship between the U.S. and the Chinese Communist Party (CCP). Enphase batteries are made there, and it seems like most days I hear about further relationship strains, such as Xi Jinping announcing his unbreakable “friendship” with fellow authoritarian/super villain Vladimir Putin.

Also, Enphase mentions starting production in Romania this year, a current NATO member and former member of the Soviet Republic which shares a large border with Ukraine. Hopefully the Ukraine war ends soon or at least is contained to Ukraine, but conflict could certainly spill over into Romania and possibly affect Enphase’s production there.

A couple risks that I am more familiar with (because we see them in our software investments) are:

  1. Better mouse trap risk : another company could come along with better microinverters (or something that makes microinverters obsolete), better marketing, quicker/better ROI, etc.

  2. TAM (total addressable market) risk : Enphase may have already gotten most of the low hanging fruit of their total addressable market. Growth could stall out in 2023, potentially for longer. The company does not provide annual guidance, so we don’t have a worst case scenario for what growth should be for this year. And for Q1, they guided much lower than usual. There wasn’t a great explanation for why on the conference call either (I provide this excerpt further down in this report).

Diving a bit more into the risk of slowing revenue growth, even if you are more interested in profit growth, Enphase’s profit growth has historically been very correlated with revenue growth. So if revenues aren’t going to grow, it might be a big leap to expect them to find ways to grow profits without growing revenues, but of course it is possible.

And many of you would rightly point out that, guidance is not to be taken too seriously most of the time because the best companies tend to strongly exceed their guidance. What I’ve learned in my time studying the best companies, is that each management takes a different approach to guidance. Looking at Enphase, I can see that they have never been a company to trounce their own guidance. At most they beat by about 3% QoQ, and that is pretty rare. They’ve also had more than one small guidance miss. What I conclude from this is that revenue growth really is likely to slow a lot in Q1 of this year.

Will this growth slowdown continue through the rest of the year, or is it a blip? It’s really anyone’s guess, as they don’t give full year guidance. My best guess would be that it’s a blip, not to be taken too seriously. I likely intend to keep this position under 5% for the foreseeable future (probably under 2% barring special circumstances), so it may get a slightly longer leash than a big concentration would. But if they keep guiding to little or no growth, you would likely see me making a quick exit.

A quick look through the financials of Enphase will assure you that, whatever risks they are facing, they’ve done a darn good job mitigating them! However, that does not mean these risks aren’t there. And yet, all investments come with risk, mostly of the “very hard to actually quantify” type. As in, what are the odds it ends up being material that Enphase manufactures in China (lots of successful companies do it), or that revenue has gotten too close to its TAM to continue hyper growth, etc? It is ultimately up to you to decide what sort of risks you are comfortable with in your portfolio.

Excerpts from the latest conference call:

“We are excited to service the U.S. customers better with local manufacturing. We plan to begin U.S. manufacturing of our microinverters in the second quarter of 2023 with a new contract manufacturing partner and in the second half of 2023 with our two existing contract manufacturing partners. We plan to open 6 manufacturing lines by the end of this year adding a quarterly capacity of 4.5 million microinverters, bringing our total quarterly capacity to more than 10 million microinverters as we exit 2023.”

XD: Some quick math here – they are expanding their capacity from 5.5 million to 10 million, an 82% increase!

“We are on track to begin manufacturing at Flex Romania starting this quarter, enabling us to service Europe better. This will enable a total quarterly capacity of 6 million microinverters exiting Q1.”

XD: I see anything that diversifies Enphase’s supply chain as a positive, although I would prefer if the facilities were a bit further away from Ukraine.

“Our GreenCom Networks acquisition, which closed in the fourth quarter helps to integrate Enphase microinverters and batteries with third-party EV chargers and heat pumps, enabling homeowners to control their devices from one app, which is the Enphase App.

“Let’s now cover the U.S. We expect our U.S. business to be slightly down in Q1 compared to Q4, primarily driven by seasonality and the macroeconomic environment. We are seeing that our distributor and installer partners are a little more cautious in booking orders . We normally have a 6-month order visibility and that has been somewhat reduced as our partners watch their spending closely. On the sell-through of our microinverters, while December was quite strong for us we saw a more pronounced seasonality in January than normal.”

The basic thesis ongoing solar and storage remains intact, aided by a few factors: first, the utility rates, which are rising in many states across the U.S.; second, the 30% ITC tax credit, which has been extended for 10 years with the IRA; and third, the desire for energy independence and tackling climate change.

XD: This above details out some of the long term tail winds Enphase can ride. For those of you new to this stock, ITC just stands for investment tax credit.

“We also expect to start ramping our third generation IQ battery in North America and Australia in the second quarter. This battery has got 5-kilowatt hour modularity, 2x the power compared to our existing battery and 30-minute commissioning time in addition to being easier to install and service.”

“Next, I’d like to comment on NEM 3.0 in California. The CPUC has finalized its decision on NEM 3.0 in Q4. While we wish the export rates had been stepped down a little more gradually, the policy is generally in the right direction for incentivizing homeowners to adopt storage.”

analyst: “But based on some of the conversations we’re having in the industry, it seems like there is a fair amount of tumult and challenge out there with trade credit being pulled back and some bankruptcies and just some challenges out there.”

Badri: “Yes. I mean, look, seasonality has always existed in the solar industry from Q4 to Q1. And historically, I would say that, that seasonality is a 15% number. That means, in general, the sell-through in Q1 is usually 15% down compared to the sell-through in Q4. Now right now, and I’m giving you a lot of data from January, and that’s the data we have. Our Q4 was very strong, including December. January, we start to experience a little more than 15%. That’s why I said more pronounced seasonality. And of course, we think it is due to the macroeconomic environment, but what we saw interestingly was the activations remain the same. I mean approximately and they were a little bit down they didn’t have that much of a seasonality.

So that basically was somewhat good because the customer demand at least whatever we saw was – I mean, did not get that much affected. But having said that, I think the installers are quite cautious. Therefore, they basically are only buying what they need from their distributors, which is a stark difference from 2022, where they were focused on supply. They were focused on maximizing what they had in their warehouse. Now is that they are worried about their spending, they are worried about their OpEx, they are worried about their cash flow. Therefore, they are going to make sure they do exactly what is required.”

XD: This was probably management’s best attempt at explaining why their guide is so weak for Q1. He is right that there is seasonality between Q4 and Q1 (there is usually a big drop in the QoQ growth rate), but it is more pronounced than last year’s.

“Now on talking about NEM 3.0 in general. NEM 3.0 is going to be incredibly positive for us. Because NEM 3.0, I mean, just so everybody gets it, I’ll talk about NEM 3.0, the features of NEM 3.0. Basically, the – previously, the import and export rates were the same. So therefore, when you exported electrons with the solar system didn’t really matter. As long as you exported, it got directly subtracted from what your input. That’s why it’s called net metering, and that was net metering 2.0. With NEM 3.0, it matters when you export these electrons. So you have 24 hours a day, 365 days a year. So basically, 8,760 data points, and there is an export rate for each of those data points. Each of those hours, there is an export rate. And – but what it works out to be is if you are interested in a pure solar system, your payback dropped understandably from, let’s say, 5 years, it increases actually to something like 7 or 7.5 years with the pure solar system. But the moment you add batteries, you can add batteries in steps of 5-kilowatt hour, 10-kilowatt hour, 15-kilowatt hour, the moment you add batteries, that payback comes right back in to that 5 to 6-year time, to that 5 to 6-year period. That is the stock difference with NEM 2.0. With NEM 2.0, the grid was the battery. Batteries didn’t have an ROI because batteries were primarily for resilience only. With NEM 3.0, batteries are going to be financially attractive. But it is complex. NEM 3.0 is definitely complex. So the installers need to demystify it for the homeowners.”

XD: I had never heard of net metering before Enphase, and I’m sure many of you are in the same boat. This was my introduction to it, and frankly I didn’t find Badri’s summary all that helpful.

For an explanation of NEM 2.0, I found this site helpful: Customer Generation

And for NEM 3.0: What is NEM 3.0 and How Will it Impact California Solar Owners? | Solar.com

I think the most important thing to know here is that California, which is a significant portion of Enphase’s business (later in the call they confide that it is 20% of their total revenue), is switching to NEM 3.0, and under NEM 3.0 solar systems will receive 75% less money on average for each KWh. So this lowers the incentive to get a solar system and is clearly not “incredibly positive” for Enphase, despite what Badri is trying to spin.

analyst: “And then secondly, if I just look at your numbers, battery volumes for your shipment guidance in Q1 will be down year-on-year for the first time since you guys started breaking that out. So, batteries all of a sudden don’t look like they are growing for you. What should we be thinking about for the next few quarters into the back half? Like does NEM 3.0 drive growth again, or is this a sort of more uncertain period of battery growth at least in the next couple of quarters until, again, the market kind of figures it out.”

Badri: “We think you should think that NEM 3.0 is going to be great for us. We are going to be growing with – along with NEM 3.0, we are going to be growing. In addition, we are going to be growing outside California too, because I am not sure whether you cut the color on what I have said, the – we are working on the battery transition right now”

XD: Badri plays defense and goes back into spin mode after a sharp question from an analyst.

“We basically told you that the revenue mix between U.S. and international is 71% and 29% and most of our international revenue is Europe.”

Conclusion and Final Thoughts

In the bull case for this company, the three straight years of stellar financials are the forest, and the litany of risks from NEM 3.0, tariff wars, manufacturing in China, conflict minerals, and a weak Q1 guide are just distracting little trees. They appear to be intelligently navigating their risks and growing their business tenaciously.

Everyone should come to their own decision, but for me, I’d like to either keep the company as a small allocation (under 5%, probably under 2%) to watch, or just add it to the watch list and check in after Q1 comes out.

However, if they resume strong guidance for Q2 and have a strong Q1, this stock will likely bounce up very quickly. People would find themselves wishing they bought in beforehand.