Christmas came early for Enphase (NASDAQ:ENPH ) shareholders at Analyst Day last week, and even a "sell" recommendation by short-seller Cramer did nothing to tarnish the phenomenal event. Enphase announced two major new growth "levers" and revealed a solid plan for expanding to a $12.5B SAM within a few years. Let's look at these new revelations and go into further depth on how Enphase can achieve their goal.
Let's look at Enphase's foundation upon which this expansion can occur:
(1) Analyst Day "Conclusion" (p.18) emphasized that "semiconductors [are] bringing greater efficiencies in integration" to Enphase products; from the IQ8 images in the slides (see IQ8/IQ8D image further below), Enphase is using Infineon's Gold C7 mosfets which have "record-level efficiency performance". Interestingly enough, Infineon (OTCQX:IFNNF) recently acquired Enphase director, TJ Rodger's company, Cypress Semiconductor (CY) from which many Enphase employees hail from, so the possible synergy at play here should make shareholders happy. Mosfet-supplier Infineon is an ideal partner to have with its 300mm fab capability, especially since Enphase's semi needs could triple with the addition of these new products.
(2) Product quality is integral to the success of a company. If you look at Enphase's chief competitor Solaredge (SEDG), their service warranty expenses have exploded this past year, but if you look at Enphase, they're approaching an industry-leading Defective Parts Per Million (DPPM) reliability target of 500, and their IQ micros are 5x higher quality than the "legacy" M-series from 5 years ago.
(3) Cypress veterans like VP Jeff McNeil at Enphase realize that customer service is critical, and have taken Enphase's NPS from a low of -30 in 2017 to almost 60 today; that is a phenomenal company image transformation; furthermore, an even better telltale of Enphase's positive transformation is the unbiased Better Business Bureau's "A+" rating for Enphase and "F" rating for Solaredge.
These company pillars - component efficiency, product quality and impeccable customer service lay the concrete foundation for at least 3 new growth levers that will allow Enphase to expand its SAM, with one of them not even being acknowledged at the Analyst Day event.
Enphase's 4 profitable top-line growth "levers" are (1) the global proliferation of the "universal SKU" micro, the lowest-cost Heron-3-based IQ7 microinverter, (2) the IQ7X expansion in the 96-cell panel arena, (3) the AC Modules and partnerships expansion, and (4) "grid-agnostic", "always-ON" IQ8 Ensemble energy solutions. These levers continue to expand with the introduction of the ~350-Watt IQ7A, ACM partner announcements from Panasonic (OTCPK:PCRFY), Solaria, SunPower (SPWR), and Sunrun (RUN), and major news on Ensemble Storage with Encharge offering customers a complete energy solution.
In further helping to expand Enphase's residential SAM, consider that Ensemble storage-only solutions sans solar could be a serious revenue stream for the company. For example, 6-kW PV delivers 1,500-kWh/kWp in California or 9-MWh per year; however, if only 30% of that is used, then 6-MWh is exported. With a nighttime or export tariff, TOU rate, et cetera, it might be better off not buying solar at all and just buying storage. Basically, charge storage at night, and use in early evening during TOU. In this case, buying 20-kWh of Encharge storage makes better sense than paying 70% soft-cost at $3/Watt for solar PV.
The new growth "levers" presented at Analyst Day were 1) the IQ8D, a "dual" inverter with the ability to propel Enphase deep into C/I territory, and 2) "Ensemble-in-a-Box" or Enphase's AC "boom-box"; these products will thrust Enphase into new markets and allow them to be seriously competitive.
The major announcement of a "dual" inverter for C/I is Enphase's fifth growth "lever" for profitable top-line growth. Settling for a "dual" halves the need for "microinverters" on the rooftop, so Enphase has been very clever with this product's focus; the IQ8D is 3-phase and meant for C/I, so it will not Osborne the microinverter in resi.
At ~640-Watts (208V x 3.08A), Enphase's IQ8D will be best-in-class amongst competitors like APS whose products without microgrid-forming ability will be marooned in a growing field of "complete" energy solutions. Furthermore, customers want single vendor energy solutions, and not a hodgepodge of multiple vendor components which have the tendency to produce service nightmares. In addition, probably one of the coolest attributes of IQ8D is that it will be "solar panel agnostic" and work with any 60-, 66-, 72- or 96-cell panel due to its 20-120V DC input range. Essentially, Enphase's IQ8D will offer twice the power at half the labor, which should make it very competitive in the C/I arena.
Source: Analyst Day 2019 (IQ8 micro {1 panel} and IQ8D dual {2 panels})
Looking at IQ8's integrated circuitry above, Infineon's mosfets, 60R102G7 for the IQ8, and 60R050G7 for the dual IQ8D, are visible. The "1851" SWIFT date-code for the IQ8D proves the product was in the design phase as far back as 2017-18, so this coincides with the arrival of the new management back then. Basically, IQ8D has been in the works for some time, and is by no means a rush-job to market.
The dual should be slightly more expensive to produce than a single (the microinverter) given the increase in higher-spec mosfets (larger die sizes), heavier coil, chassis size, et cetera, but Enphase should still have the flexibility to price IQ8D in a $100-150 range with a 35% margin where $100 for a 640-Watt IQ8D equates to $0.15/Watt. Solaredge is at ~$0.26/Watt where their revenue is 50:50 resi-C/I with resi at a high- and C/I at a low-$/Watt. If IQ8D debuts between $0.15-0.20/Watt, that would be seriously competitive against Solaredge 15-, 20-, and 33-kW string inverters accompanied with dual 800-Watt optimizers. For ~30kW solutions (~100 panels), IQ8D should compete very well.
IQ8D increases SAM where Enphase did not have a cost-effective C/I solution. In housing associations in EMEA were APS threatens, the "dual" could become a disruptor with its microgrid-forming ability and competitive $/Watt price-tag. Currently in EMEA, 270-280-Watt panels are the inexpensive de facto standard, so paired with IQ8D, this duo would be highly competitive. In addition, Sonnenstrom, the cutting-edge quality leader for solar modules made in Germany, will be debuting an Enphase AC Module in the EMEA market in 2020. Sonnenstrom in the EMEA market is analogous to LG in the US market back in 2017 where over 100k LG ACe's where sold before tariffs shifted the playing field. Sonnenstrom will be the first AC Module player in EMEA, so that should pump Enphase's third growth "lever" even more. Germans like to buy German products, so having a German AC Module producer with "Infineon Inside" should definitely help Enphase's push into these markets.
Given the advantages of not having any high-voltage DC on the roof, many companies are switching to "safe AC" solutions as the recent announcement of 700 installers using Enphase AC Modules suggests. AC off-the-roof energy solutions will result in lower insurance requirements and give Enphase's "safe AC" solutions even greater appeal. The recent Walmart-Tesla solar fires are a wake-up call to the dangers associated with high-voltage DC energy solutions, and it should be noted how quickly Tesla (TSLA) scrambled to deal with these problems lest SolarCity go down in flames, literally. IQ8D could eventually become the "safe AC" solution for low-end C/I as IQ8 will be for all of resi.
Source: Analyst Day 2019 (Ensemble-in-a-Box aka Enphase's AC "boom-box")
The other major growth "lever" announced on Analyst Day was "Ensemble-in-a-Box". This easily-installed, self-contained AC box will disrupt the offgrid market and contain all the components necessary to create a portable energy solution, albeit a couple of solar panel accessories. Enphase's AC box will have UPS functionality with the capability of charging from the electrical grid (AC outlet) or from solar panels (DC source). Ensemble-in-a-Box has the potential to sell millions and become the Apple iPhone of the offgrid world if pricing is competitive. There really is nothing comparable on the market from competitors like Victron or MasterVolt with their bits-and-piece solutions. Wherever there are offgrid needs, that is where an Ensemble-in-the-Box could be applied; that is why Enphase is projecting a $4B SAM within a few years and for Ensemble-in-a-Box to become a household item.
Ensemble-in-a-Box is directed towards "RoW" markets, so of the ~$450B remittance market, approximately 15% is spent on non-food expenses. With a uniquely independent, safer, more reliable and efficient, better-performing, silent-running energy solution, Ensemble-in-a-Box could start replacing generators in many circumstances, where generators move from a primary to a secondary or even tertiary status. Don't forget that remote South American mining billionaire investor, Isidora Quiroga, has bought 2M more shares of ENPH this year.
Enphase's offgrid solution is truly their sixth growth "lever" meant for places like India and markets where electricity generation is unreliable or non-existent, but the product has even a wider range than that. In fact, it could be looked upon as a seventh growth "lever" existing in the Western Hemisphere where electricity generation is reliable, but in the leisure-recreational markets where an Enphase-in-a-Box could be like the "boom-box" of the 1980's; it could also be every preppers must-have item, especially for the 2.15 million PG&E customers who were recently without power for more than a week. Can you imagine all the outside patios, high-rise decks in the cities, construction and camping sites, portable sheds, et cetera, that will make an excellent setting for this portable energy solution? Recently, PV Magazine USA's John Weaver wished for an Ensemble energy solution for Christmas, and Ensemble-in-a-Box is the manifestation of that wish but for 2020. This 7th-lever is truly a green-field TAM, a market that doesn't even exist now, so only an estimate can be made; nevertheless, the product would definitely address a huge need.
Enphase's "dual" IQ8D and Ensemble-in-a-Box announcements are awesome, but the solar industry is still looking at a potentially bleak Q1, partially due to seasonal tradition, and partially due to government shell games with Safe Harbor. Hopefully, these new products ensure an excellent Q1, especially since they do present entirely new revenue streams for Enphase. Consider that with IQ8D alone, 30-40% of revenue could come from C/I where this product could be a Solaredge-SMA killer. The Ensemble-in-a-Box should experience heavy demand considering the Enphase brand name and product uniqueness; if sold online or in a Home Depot along with 2 solar panels, it could be a major revenue booster for Enphase.
Consider that the "dual" IQ8D and Ensemble-in-a-Box, along with ACM's from Sonnenstrom may decide Enphase's fate going forward in a German market controlled by a Solaredge-SMA duopoly. The AC box can easily be used to build brand-name via DIY and leisure markets, but Enphase cannot break Solaredge-SMA with PV that doesn't add value or is more expensive; IQ8D could be the weapon of choice here for breaking that duopoly.
In the US, the bureaucrats translated safety into NEC regulation; in Europe, it's still the Dark Ages with regards to DC solar installation safety; the only true focus is cost, as there are no other DC voltage restrictions. There is IEC-60364, but the electrical installation targets wiring and load-panel requirements like fuses, wire diameter, current, and not so much roof safety where voltage remains on the system even when disconnecting the inverter. Therefore, pricing is the deal breaker in EMEA, and that is why IQ8D could be Enphase's salvation there.
Source: Analyst Day 2019 (Encharge - Ensemble Storage with IQ8 micros)
Consider that an Encharge 3.4, Encharge 10.1 and Ensemble-in-a-Box equal four, twelve, and three IQ8 microinverters sold, respectfully, and then there's the single and dual inverter sales. With this product arsenal, Enphase can max out at 3.5M inverters and 120MWh of storage per quarter; at $100 per inverter and $800/kWh of storage, that's ~$450M per quarter allowing Enphase to double sales. With four quarters at ~$450M each in resi, C/I, and offgrid, that's ~$2B in 2020-21. Further consider that if Enphase achieved just 25% of their SAM goal or ~$3B in 2022-24 timeframe, then that would be 5x 2019 revenue or 5x 2019 share price; that blows away DB's $120 target price, and $3B at 20% is $600M operating income, so at 20-30x, this gives Enphase a $12-18B market cap; if Enphase can reach these numbers, then surely they are a Nasdaq-100 company in the making.
In today's marketplace, Enphase's transformation as a responsible company of high-quality and values should be commended, for it is the necessary foundation for the company to grow further. Regardless of the speculation, Enphase's new products will give them entry into new markets thereby increasing their SAM, as well as revenue. As always, hindsight is 20-20, so please do your own due diligence and be careful playing in the stock market casino. Good luck in 2020.
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Disclosure: I am/we are long ENPH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: You can also find some more of my articles on Enphase on the company's TechTalks guest blog. Here's one of my latest — https://enphase.com/en-us/stories/enphase-better-money-bank Thank-you.