By Elsa Ohlen

The solar industry's recovery is under threat as U.S. tariffs and President Donald Trump's energy agenda risk dampening growth in the sector.

Like in most industries right now, solar investors are fretting about increased uncertainty over global trade and the economic outlook.

For industry watchers, key themes heading into earnings include: tariffs on solar cells and components used to manufacture them; the future of the Inflation Reduction Act (IRA); the demand outlook for residential solar; and what Trump's policies will mean for interest rates.

Tariffs on Chinese solar products have been in place for years. This meant the majority of U.S. solar panel imports were coming from Southeast Asian countries including Thailand, Malaysia, and Vietnam -- nations that were hit with some of the highest so-called reciprocal tariffs before Trump announced a 90-day pause on most of them.

"Sentiment remains negative given no clear signs of a demand recovery in the U.S. or Europe, IRA tax credit uncertainty, and continued concerns on share loss to PW3 [ Tesla's Powerwall 3 solar and battery system]," TD Cowen analyst Jeff Osborne wrote in a preview note on Enphase, a solar equipment company that kicks off the sector's earnings on April 22.

There is also the issue about how tariffs will push up solar prices. If the taxes end up increasing inflation, which most economists agree they will, that may also put a pin in the Federal Reserve's interest-rate-cutting cycle.

The U.S. solar sector has been weighed down by a buildup of unsold inventory as stubbornly weak demand has eaten into margins while consumers are put off by high borrowing costs. Higher-for-longer interest rates risk prolonging the pain for solar companies, especially those focused on installations.

Investors will likely look at companies' inventory for clues about demand. Shares of Sunnova and Sunrun -- companies focused on residential solar installation -- could be especially vulnerable to signs of softening demand.

The Inflation Reduction Act, or the IRA, is another big unknown. Signed into law by former President Joe Biden, the bill aims to increase domestic clean-energy production and can give companies tax credits of up to 50% of the project value. Trump has called for an overhaul or even a repeal of the act.

First Solar, which reports earnings on April 29, is often singled out as one of the few winners from tariffs, as the only large-scale solar panel maker in the U.S. However, if components to make the panels are subject to tariffs or trade restrictions, they may hit First Solar's profits, too.

"While the tariff environment remains highly volatile, First Solar is more insulated than others given its domestic manufacturing for U.S. customers," Osborne said.

Jefferies analysts led by Julien Dumoulin-Smith agree First Solar looks like a good bet in the long term, even amid sector uncertainty and near-term "exposure to SE Asia manufacturing still requires some reconfiguring and consideration on margins."

Meanwhile, Trump's rhetoric of favoring oil and gas over renewables isn't helping sentiment. Recently, he halted work on a major offshore wind project in New York. The Empire Wind Project had already begun construction with all necessary permits in place and was expected to provide electricity for about 500,000 homes.

"Doubling back to reconsider permits after projects are under construction sends a chilling signal to all energy investment," Jason Grumet, CEO of the American Clean Power Association said, Barron's reported Wednesday .

Write to Elsa Ohlen at elsa.ohlen@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 18, 2025 06:30 ET (10:30 GMT)

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