Enphase Energy's Tariff Woes Drive Stock to Near Five-Year Low Amid Margin Pressures

Enphase Energy (ENPH) shares have tumbled to near their lowest levels in years, reflecting investor anxiety over tariff-related margin pressures and weak Q2 2025 guidance. The solar technology leader’s stock closed at $48.20 on April 23, 2025—its lowest point in over two years and a stark contrast to its 2022 peak of $336. While this price remains far above its five-year nadir of $23.99 in May 2020, the recent decline underscores the challenges Enphase faces as tariffs on Chinese battery imports and supply chain constraints weigh on its financial outlook.

Tariff Headwinds and Margin Squeeze

Enphase sources battery cells from China, a decision now backfiring as U.S. tariffs—including a 145% levy on Chinese imports and retaliatory 10% duties on other countries—squeeze its margins. For Q2 2025, tariffs are projected to reduce gross margins by 2%, a relatively muted hit thanks to pre-tariff inventory stockpiles. However, starting in Q3 2025, the impact will intensify, with margins expected to drop by 6–8% as these reserves dwindle and new materials face full tariff exposure.

CEO Badri Kothandaraman acknowledged the pain but emphasized a two-pronged strategy: diversifying suppliers outside China and adjusting pricing. The company is fast-tracking qualification of alternative battery cell suppliers, aiming to fully offset the tariff impact by Q2 2026. “We’re moving with urgency,” Kothandaraman said, though he noted that policy shifts could still disrupt plans.

Financial Outlook and Market Reaction

Q2 2025 revenue guidance of $340–380 million includes $40 million from “safe harbor” sales, a regulatory carve-out for tariff-affected goods. GAAP gross margins are expected to range between 42%–45%, while non-GAAP margins (including Inflation Reduction Act benefits) are projected at 44%–47%. Stripping out these benefits, however, reveals a grim reality: non-GAAP margins would drop to 35%–38%, underscoring the tariff’s bite.

The market has priced in these concerns. ENPH’s stock has shed over 40% from its 2024 high of $95.77, with April’s volatility highlighting investor skepticism. Even as Enphase’s microinverter segment—produced domestically—remains tariff-free, the battery business’s struggles have overshadowed its leadership in distributed solar solutions.

Can Mitigation Efforts Turn the Tide?

The company’s plan hinges on supplier diversification. If successful, margins could rebound to pre-tariff levels by mid-2026. Analysts, however, caution that supply chain shifts take time and may not fully offset the current margin squeeze. Meanwhile, pricing adjustments—already factored into Q3 guidance—could risk losing market share to rivals like Tesla (TSLA) or SolarEdge (SEDG), which face fewer supply chain hurdles.

Conclusion: A Risky Wait for Turnaround

Enphase’s stock now trades at roughly 2.5x its 2025 revenue estimates, a discount to peers but reflective of its near-term risks. While the company’s long-term position in distributed energy remains strong, investors must weigh the potential for a 2026 recovery against the immediate pain of margin contraction. If Enphase can secure new suppliers and stabilize pricing without losing customers, its shares could rebound. But until then, the road ahead is bumpy.

With the stock now at $48.20—half its 2022 high—investors may see value in a leader of the solar microinverter market. Yet, without clear signs of progress by late 2025, patience could be tested further. Enphase’s story is one of innovation and resilience, but tariffs have turned its supply chain into a high-stakes gamble.