US solar stocks jumped sharply on Monday as investors cheered the new actions by Joe Biden to increase tariffs on Chinese imports. Sunnova Energy (NOVA) stock jumped by 3.7% while SolarEdge (SEDG) and SunPower (SPWR) soared by 5% and 20%, respectively.

The main catalyst for the rally was a report by Bloomberg revealing that the Biden administration was considering adding tariffs on Chinese solar imports. It is also considering adding tariffs on China’s electric vehicles (EV) while cutting those of key equipment used in manufacturing solar panels.

Therefore, these stocks surged as investors anticipated strong growth in the US solar energy industry that is battling cheap Chinese imports. SunPower would benefit from this since it is one of the biggest solar panels manufacturers in the US.

SolarEdge would benefit if the US implements tariffs on its core products like inverters, optimizers, and monitoring systems. Sunnova Energy would be hurt by these tariffs because it buys panels and inverters from companies like SunPower and Panasonic.

However, I believe that the impact of these tariffs on US solar companies will be minimal for two main reasons. 

SunPower vs Sunnova vs SolarEdge vs Sunrun vs First Solar

First, China dominates the solar energy industry, helped by billions of dollars in incentives from Beijing and local governments. The country is now going through a prolonged period of overcapacity, which has led to a sharp collapse in prices.

Chinese solar panels will always be cheaper than those made in the United States. China has the technology and access to trained low-cost labor. In the US, the average hourly wage in the US stands at almost $12. In China, the average wage is less than $1 per hour.

Therefore, a 100% tariff on Chinese solar panels will still make them cheaper than those made in the United States. 

Recent data shows that tariffs on China rarely work. For example, China’s trade surplus with the US has widened significantly since Trump implemented tariffs in 2018.

Second, a complete ban of Chinese solar panels as some experts have proposed, would also not work out. That’s because most Chinese companies have expanded their presence in other countries, including Mexico, to take advantage of rising demand in the US and Europe.

Solar energy stocks have been among the worst performers in Wall Street in the past few years. SunPower shares have crashed by over 74% in the past 12 months. Most investors believe that it has more downside. It is the most shorted US stock with a short interest of 95%. 

Sunnova Energy shares have dropped by over 74% in the past 12 months while SolarEdge is down by 83%. First Solar (FSLR) and Sunrun (RUN) stocks have dived by over 14% and 30%, respectively.

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