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Solar stocks have been a focus this week as President Trump's tariffs as well as the debate over the tax bill in Congress cast a cloud of uncertainty over the industry. We're navigating how to play the solar sector with the Yahoo Finance playbook and joining us now to shed some light on the sector is Dimple Gosi, BVA Securities Clean Energy analyst. Dimple, thank you so much for being here.

Thanks for having me, Julie.

So yes, there are the tariffs with which some of them benefit and some of them don't benefit different parts of the industry. So that's a little complicated. Then you also have Republicans pushing to phase out some of the credits in the IRA. I guess let's first take big picture, what is the biggest potential risk for the industry in all of this policy talk?

Well, let's start with the good news. Uh IRA full repeal is off the table for now, which is why you saw the price action that you did this last week, right? Um I think the market had priced in some uncertainty whether we might see a full repeal or otherwise faster phase down 45X tax credit, which is the advanced manufacturing tax credit, which is core to some of the key equipment manufacturers, be it for solar, which is 50% of our price objective today, or, you know, whether it comes to trackers and and some of the inverted players, 45X is key. So there was some uncertainty whether that would be repealed or not. Good news is that it's intact. Um there's some faster phase out which is meaningless or I would say uh pretty benign as it stands, but there could be changes made, right? Um transferability, question mark as to how that goes. It was a bit of a big surprise there. And then safe harbor too big surprise. So a lot of the details are still being um you know, sorted through, but as it stands, I would say uh net net it turned out to be relatively positive.

What about tariffs, Dimple? Broadly, how does that what are the downstream effects for the sector?

Well, from a tariff perspective, look, I think, you know, as it stands, there's a lot of moving pieces. It's pretty binary for a lot of the stocks. Today, if I think about Chinese tariffs, that is super important for the battery supply chain, right? Uh there is just you know, if you think about LFP batteries, uh 90% of that is sourced from China. That's an industry killer for example, if we don't get, you know, a reversion to um you know, something that's more reasonable. As it stands, 145% is is on pause, obviously. And so economics tend to work under the current tariffs of of 30% on China for the likes of Enphase, uh may to some extent Fluence, but if we were to see that north of that 30% back to 140% or so, uh this does have a big implication for margins, the ability to pass through those costs, um and and ultimately in demand.

And Dimple, we talk about the the solar stocks as a monolith, but they are not. They're very different in terms of what they do. So let's look at it through the prism of two stocks, one that you like, one that you don't. First Solar that you like, Enphase that you don't. Now, these companies are in totally different parts of the chain. For people who aren't familiar, explain to them where they each sit.

Good question, right. So First Solar, I call them simply the domestic king, right? They use cadmium telluride technology, which is not reliant on crystalline silicon uh which is which is a Chinese technology, which basically insulates it from any type of of tariffs that are that are being implemented. So First Solar has been a long-time beneficiary from things like anti-dumping and countervailing duties, otherwise known as ADCVD, um and now more recently, these tariffs that have been implemented across across the market. Now, I won't I won't completely um negate any impact to First Solar because they do have about 7 gigawatts of name plate capacity outside the US via Malaysia and Vietnam where we have seen some reciprocal tariffs, which are now on pause. But to the extent that, you know, the universal 10% tariff stays in place, you know, management have highlighted a great initiative or strategy of almost moving that capacity back to the US, right? Doing that will enable them to capture over half a billion dollars um of of 45X tax credits. So, uh you know, they I think they leverage towards domestic uh policy tailwinds, which has benefited them tremendously. And the fact that, you know, through the IRA, we're talking about foreign entity of concern provisions, which basically prohibits um, you know, any new cell capacity from international players entering the market, gives First Solar further runway to compete in our view.

Got it. So you have First Solar, this the domestic panel manufacturer, then you have Enphase.

Correct.

which sits in a different part of the technology stack.

Right. So Enphase think rooftop solar, right? uh inverters you know, they don't make the panels. They make the tech that transfers the energy to the house.

Exactly, you said it best.

So Julie, um look, it's Enphase is exposed to a different set of macro drivers, right? I think residential solar has seen a market that's deteriorated 30% in the US last year. This year, market expectations, you know, were up 20%, now recalibrated down to flat to down, actually. And tariffs just complicate the matter further, right? And and this is why I think one is residential solar has seen weak demand, right? In the US and Europe, higher interest rates don't help them. NEM 3.0 policies are further complicator or you know, causing a further risk of adoption, especially for loan-based um installments. But then the tariffs is where it really gets juicy. Now we spoke about some of the draft bill provisions uh earlier on and 25D is the tax provision that enables home owners to capture 30% tax credits to lower the cost of their of their solar system, right? Uh that basically ends at the end of this year. What does that mean for uh volumes, right? Net net, it is a big um it has a big impact for in demand. On the tariff side, now, you know, battery storage was always the sweet spot. We kind of argued that, hey, look, new battery adoption, new technologies here um would likely see TAM expansion for for Enphase because you know, more storage adoptions means that you know, we might see more growth on the micro inverter product. But like I said earlier on, all of these batteries are coming from China. So to the extent that we see a 30% rate or we see the reciprocal rate, it's a question mark. Today, Enphase has guided um margins down, you know, 2% this past quarter, 6 to 8% in Q3, uh as they look for for new supply chain um partners, right? So whether that margin deterioration is structural or not is yet to be seen.

Dimple, great to see you. Thank you for having you on the show today. Thanks so much for your time.

Thanks for having me.