Nextracker Is the Market Leader in the Growing Solar-Tracking Industry

Equity Analyst

Brett Castelli

Nextracker is the world’s largest manufacturer of intelligent tracker systems for utility-scale solar projects globally.

Tracker systems improve efficiency and energy yields across a solar project by intelligently directing solar panels in the most efficient proximity to the sun, ultimately improving the economics of a project. Nextracker claims that utility-scale solar projects that use a single axis solar tracker can generate up to 25% more energy than projects that use a fixed-tilt systems, which install each solar panel in a static position. Nextracker’s flagship product, NX Horizon, is an independent-row tracking system where each row of solar panels is connected to an independent motor, optimally positioning each row to the sun. We view Nextracker’s independent-row technology as the most flexible tracking solution in the market compared with its competitors who primarily market linked row systems.

Further international expansion is part of Nextracker’s growth strategy as it seeks to build on its leading global market share. The United States was a firm mover in adoption of solar trackers and its international exposure, with leading positions in Brazil and Australia and growing positions in the Middle East and India, will should continue to support revenue growth as internal penetration rises.

Nextracker is looking to grow attachment rates of its TrueCapture software offering. TrueCapture is the brains of its tracking solutions, directing each row of panels on how to optimally position by the suns positions, constantly monitoring weather conditions, and checking for blind spots. TrueCapture can enhance energy yields in the low-single digits on average. Nextracker’s software revenue is estimated to account for only 1%-2% of total sales. 

Nextracker’s 2023 initial public offering, or IPO, and separation from Flex likely opens the door for acquisition opportunities in the future acquisition opportunities in the future. We look for the company to potentially acquire expertise beyond its traditional solar tracker space, including balance of system hardware and inverters.

Business Strategy & Outlook

We assign Nextracker a no-moat rating. 

Nextracker’s flagship product, NX Horizon, is an independent row solar tracking solution. In addition, the company offers an integrated software solution, TrueCapture, to optimize its tracking solutions by serving as the brains of the connected system. 

Tracking systems have been increasingly commercialized, specifically in domestic markets like the U.S. and Australia, enhancing energy yields across a solar project. Historically, solar projects were developed utilizing a fixed tilt system, where each panel is set in a stationary position. Tracking systems increase energy yields by continuously moving and optimizing the position of each solar panel row or group of rows in direct positioning with the sun. The additional upfront capital spending to install a tracking system, often 10%-15% of the total project cost, is made up for in the long run by enhancing energy yields. Similarly, Nextracker’s value proposition is that its products, while at a marginal pricing premium to its competitors, offers the best energy yield enhancement and ultimately the lowest levelized cost of electricity among its peers.

Nextracker’s hallmark is its independent row solar tracking solution, where each row is powered by a single motor and independent of the next, allowing for maximized yields across the fleet. Competing tracking systems are linked rows, where one motor controls multiple rows of solar panels, such as Array Technologies’ offering. Although optimized positioning would be relatively consistent for such a section, challenges such as blind spots arise under certain positioning with the sun. By allowing each solar panel row to move independently, they can be positioned to still capture adequate sunlight, remain congruent without blind spots, and maximize yield for the whole fleet. Additional benefits include different product offerings designed for imperfect landscapes or challenging terrains. Despite Nextracker’s independent row technology we don’t think it benefits from an intangible assets advantage.

Nextracker boasts a portfolio of over 400 patents which are predominately allocated toward its tracking hardware systems. However, we don’t view solar tracking systems as incredibly technical products. For example, Nextracker’s spending on research and development is approximately 1% of sales, toward the lower end of the broader solar industry. 

While the technical construction of its tracking systems may not be repeatable, similar strategies—whether a new single row development or 2P (a side-by-side solar panel structure)—have been developed at competing firms. For example, competitor Gamechange Solar offers an independent-row tracking system that directly competes with Nextracker, limiting its intangible asset advantage, in our view. 

We think another limiting factor of Nextracker’s current moat it its customer mix. Approximately 25% of its customers are owners or developers, which are the long-term owners of a solar project. Alternatively, 75% of the firm’s business is derived from engineering, procurement, and construction firms. We view Nextracker’s business with developers as moaty, but its EPC relations are cost-driven and weigh on Nextracker’s ability to develop customer relationships. Developers/owners are committed to a project’s long-term returns and are willing to incur a higher upfront capital expenditures bill to develop a solar project if it is accretive to its return profile, which is Nextracker’s value proposition. Nextracker’s single-row technology offers true panel independence, often leading to the best energy yield enhancement in the industry.

Alternatively, EPCs have a different approach. EPCs are hired by a developer to construct the site, managing the construction process. EPCs have an incentive to control costs to secure developers’ business but lack ongoing interest in a project’s performance. As such, EPCs are incredibly cost conscience around their budget when managing a project. Nextracker’s value propositions, which are enhanced energy yields and a high-quality product, are not aligned with EPCs' priorities. Developer relations are stronger and are naturally stickier, but only account for 25% of sales.

Again, we view Nextracker’s product suite as high-quality respective to its growing industry. Their IP may not be directly replicated, but similar strategies—whether single-row or 2P systems—likely will be. Additionally, Nextracker’s main customer base, EPCs, exhibit sharply lower customer stickiness in comparison to owners/developers. Trackers are a relatively new technology with only a few major players in the U.S. (Nextracker and Array account for about 70% market share). Robust economics will inevitably be competed away in the long term, as pricing will remain a key consideration and technological differentiation is not high enough to warrant a moat.

None

Economic Moat

NEXTracker Inc

Earnings data Q4 2023

Earnings data Q1 2024

Earnings data Q2 2024

Earnings data Q3 2024

Earnings data Q4 2024

Nextracker reports record revenue and raises annual targets amidst market challenges

Nextracker's Q4 2023 performance reflects strong revenue growth, proactive investments, and a commitment to product quality. While facing market challenges and competitive pressures, the company sees significant opportunities in the U.S. and international markets, emphasizing innovation and customer-centric success.

Nextracker excels in Q1, boosts guidance amid global market leadership

Nextracker's Q1 fiscal 2024 earnings call showcased robust financial performance, market leadership, and strategic focus on innovation and customer support.
Despite challenges in the U.S. market and potential steel price impacts, Nextracker's strong financial position, global supply chain, and product innovation position it well for growth.
With increased revenue and EBITDA guidance, strong international performance, and market expansion opportunities, Nextracker is poised for continued success in the solar technology sector.

Nextracker reports record Q2 earnings, eyes growth in India

Nextracker's Q2 performance was strong, marked by record revenue, increased guidance, and a new backlog exceeding $3 billion, positioning the company for growth.
The company's focus on innovation, software adoption, and market presence in India presents opportunities for differentiation and expansion.
While facing challenges in pricing negotiations and managing margins, Nextracker's strategic initiatives and financial strength bode well for future growth.
Overall, Nextracker's performance, strengths, and opportunities outweigh the challenges, indicating a positive trajectory for the company.

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Nextracker, Inc. engages in the provision of integrated solar tracker and software solutions used in utility-scale and ground-mounted distributed generation solar projects. Its products enable solar panels in utility-scale power plants to follow the sun's movement across the sky and optimize plant performance. The company was founded by Daniel S. Shugar, Alexander Au, Nicholas Miller, Michael Mehavich, Marco Garcia, and Tyroan Hardy in 2013 and is headquartered in Fremont, CA.

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