The Most-Hated Bear in Solar Isn’t Backing Down

When Elon Musk’s SolarCity hosted stock analysts about a year ago to gush about its prospects in the solar industry, Gordon Johnson was nowhere to be found.

It seems that Johnson, a 36-year-old analyst at boutique advisory shop Axiom Capital Management Inc., wasn’t invited. This may not have been an oversight; it happens to him a lot.

“Everybody hates me,” says the New York-based analyst in jest, acknowledging his reputation as solar’s notorious bear, a soundbite-ready contrarian among a group of analysts generally bullish on the industry’s long-term prospects. “Companies don’t like me because I have sell ratings on their stocks.”

Turns out Johnson was right about solar-panel company SolarCity, bought by Tesla Inc. last year. And SunEdison Inc., the now-bankrupt clean-energy giant, before that. He also forecast troubles for SunPower Corp. years before. His bearishness sometimes gets him in trouble, as when he once stayed negative too long on First Solar Inc.

But given his generally good track record, “People are inclined to listen,’’ says Michael Morosi, an analyst at Avondale Partners LLC in Nashville. “He’s pretty much two-for-two the last two cycles.”

These days, Johnson has a sell rating on every stock he follows (including some steel companies), and he has a fresh reason — Donald Trump. Johnson figures the president, a renewables critic during the campaign, may attempt to revoke federal subsidies for solar — a minority opinion, to be sure. “It would be a big negative for renewables, particularly solar,” Johnson says. Tax reform would also hurt.

Solar Returns

Investors may share this view. The Bloomberg Global Large Solar Energy index has dropped about 5.6 percent since Trump was elected, compared with a 9.8 percent gain in the broader S&P 500 index.

A solar skeptic since his tenure at Lehman Brothers a decade ago, Johnson isn’t beloved among the companies he covers, not to mention other Wall Street solar analysts. Some observers view him merely as an ally of the hedge funds and other short-sellers that are his clients, and sometimes just lucky in playing what they call the solar-coaster.

“Research analysis is best done without a prevailing bias,” says Brad Meikle, an analyst at Craig-Hallum Capital Group LLC in San Francisco. “It’s pretty clear that Gordon’s got a pretty negative view of the clean-energy space.”

Johnson dismisses talk that he is, as he puts it, similar to a broken clock that gets it right twice a day. “There’s no luck in making a short call,” he says. While most companies ignore his questions, SolarCity is among the exceptions, even if it didn’t invite him to a conference. His bearishness certainly doesn’t diminish his standing where he works, he says.

“My boss doesn’t care about my negativity,’’ says Johnson, who says he has about 400 clients, mostly hedge funds. “He just cares that I make commission.”

A spokeswoman for SolarCity declined to comment.

Media Profile

At 6-foot-1 inches, impeccably tailored and with J.J. Abrams-nerd glasses, Johnson has already carved out a media profile with frequent TV and radio appearances. It’s likely to grow further under Trump, who has claimed that climate change is a hoax created by China.

Johnson’s contrarian view derives from a simple thesis: solar, he says, can’t compete with, or replace, natural gas because it can’t provide around-the-clock power and because it has needed subsidies to be competitive.

Such reliance on subsidies — and frequent changes in the size of the subsidies globally — has helped create booms and busts for publicly traded solar companies despite the sector’s staggering growth. The amount of solar power capacity worldwide surged about 30 percent last year, and will grow by another 25 percent this year, according to Bloomberg New Energy Finance. The U.S. rooftop solar industry grew 79 percent in 2015, according to New Energy Finance, and was expected to grow 21 percent last year.

Tepid Growth

Joseph Goodman, a principal at Rocky Mountain Institute, an environmental research nonprofit, says the volatility of solar stocks will smooth out with continued growth and improving efficiencies.

“In the past two cycles, we didn’t see a lot of people buying solar because they were saving money,” he said. “Now we do.”

Most clean-energy analysts, while under no illusions that Trump will prolong Barack Obama’s support for solar, say the sector will sustain at least tepid growth. Solar’s tax credit, they say, is already scheduled to dwindle and congressional approval would be required to cut further.

Johnson went to Wall Street after graduating from historically black Morehouse College in Atlanta, where he studied finance and economics. His first job was at JPMorgan Chase & Co. in 2002, where he was an investment banking analyst.

“Hated the hours then,” he says. “It was hard to date. There were some all-nighters.’’

Bear Approach

So he tried research, and joined Credit Suisse Group AG as a medical device analyst. He cycled through other shops, including Bear Stearns, before landing in 2006 at Lehman, where he initially focused on semiconductors.

In 2009, he moved to Hapoalim Securities where he initiated coverage –- downbeat — on three leading solar companies, First Solar, SunPower and MEMC Electronic Materials Inc., the company that later became SunEdison.

“I saw an oversupply of polysilicon, which would drive costs lower,” Johnson recalls, referring to the main raw ingredient in solar cells. “I didn’t think demand was sufficient versus the supply. And that is exactly what happened.”

His job at Hapoalim didn’t end happily. He says First Solar disagreed with a research note, leading to his departure in 2010.

A spokesman for First Solar declined to comment. Bank Hapoalim officials couldn’t be reached for comment.

Johnson has had some painful setbacks. While in his usual bear mode, a tsunami struck Fukushima in 2011, prompting Japanese officials to consider using solar as a replacement for nuclear energy. Solar stocks promptly shot up.

SunEdison Story

He had another bad call when he began covering SunEdison again in 2015, recommending the stock near the top of the wave. But he was one of the first analysts to turn on the company after its July 2015 peak. It filed for bankruptcy last April with $16.1 billion in liabilities, the largest 2016 filing in the U.S.

“SunEdison was a very complex story,” he says, a company that required ever-higher cash flows to stay afloat.

Johnson also asserted in April, when SolarCity was trading at almost $34, that the then-Wall Street darling was plagued by financial engineering and an unsustainable debt pile. Two months later, Musk’s Tesla announced it would buy his SolarCity, rescuing the solar installer from its own troubled balance sheet.

The deal closed in November. It valued the stock at less than $21.

About BloombergNEF

BloombergNEF (BNEF) is a strategic research provider covering global commodity markets and the disruptive technologies driving the transition to a low-carbon economy. Our expert coverage assesses pathways for the power, transport, industry, buildings and agriculture sectors to adapt to the energy transition. We help commodity trading, corporate strategy, finance and policy professionals navigate change and generate opportunities.
Sign up for our free monthly newsletter →

Want to learn how we help our clients put it all together? Contact us