There has been a big question of what COVID-19, also known as the coronavirus, means for our families, our businesses and the economy. I will step through coronavirus basics, the economic picture, the energy and solar supply chain disruptions, the demand disruption and what you should do about it for your business and your loved ones. I will provide my current best guess on what that will look like but please note that this is not advice, it is just my opinion.
The coronavirus is spread by coughing and sneezing, which creates droplets that transmit the virus. It’s not spread through the air, but the infectious virus can live on surfaces for up to a week. Medical advice suggests that you will not be infected unless your unprotected face is either coughed or sneezed upon or you touch your face with the virus. Infection happens via your nose, eyes or mouth.
The early numbers and the World Health Organization warning show a mortality rate of 2 to 4%. The CDC is the best source of information on the virus. That said, we believe there are potentially a lot of mild and unreported cases that could when counted, drive the actual mortality rate down to as low as less than 1%. This puts the coronavirus potentially in line with influenza, which is known to have a mortality rate of 0.5% to 1.5% depending on the healthcare system.
But this is just our view. Early reports are saying that most people will be O.K., though if you have a compromised immune system or health issue, be careful. The best source of information is on the coronavirus is the CDC and Johns Hopkins University is keeping track of cases reported. We also expect the coronavirus will continue to spread across the United States and the globe.
What is the bigger economic picture here?
This will most likely be the largest economic impact and emergency that many younger U.S. citizens have seen in their lifetime.
When it comes to the economy, fear is not a good stimulus. We are at the end of a strong 10-plus year growth cycle and historically, one would naturally expect a slow down for macroeconomic reasons. The government and world will do everything to prevent the following scenario, but it is worth it to know what they are avoiding and the potential ramifications.
Fear itself can keep factories from going to work (productivity) and countries from consuming goods as they stay home (consumption), thus driving lower corporate earnings bringing the public markets down (equities; a good chunk of individual’s wealth, further building on lower consumption).
My best estimate of the way our country will approach the Coronavirus is to keep the virus quarantined as much as possible, to keep the fear as low as possible and get life returned to normal, as soon as possible. A slow-down of consumption and production can leave highly leveraged corporations, or corporations with limited cash on hand, needing further financial support.
The government may have to put together programs that help support organizations that are highly leveraged with debt if it looks like things go further south with the economy. This not only props up corporate earnings and the stock market (people’s wealth) but also keeps the job numbers as high as they can be which allows people to have money to spend to keep stimulating the economy. Moreover, the government is expected to again lower interest rates to help drive a stimulus.
How does the solar and energy supply chain get impacted?
The first thought people have is about a shortage of supply. At Soligent, we are constantly in touch with our manufacturers understanding their supply situations. The easiest way to think about supply disruptions and when they will hit is to picture the supply chain in pieces.
Most of the finished goods in the U.S. solar market do not come from China (due mostly to high tariffs) but often other countries — however, they do use Chinese materials in their products. A disruption in China takes months to hit the U.S. market and we expect a potential slight disruption of supply at the end of Q2. Moreover, as of the first week of March, Roth and SSX estimated supply continuity now occurring with over 80%+ factory utilization in East Asia/China
That said, there are some potential short-term shortages on some smaller components, like junction boxes, though they can be expedited by air once manufactured.
For example, take a panel manufacturer that operates out of Vietnam. You can think of it as you have about five weeks of supply or more in transit from China to Vietnam; you have about four to eight weeks of supply in inventory in Vietnam; then you have about eight to 10 weeks of supply on the water to the United States from Vietnam; and finally, you have six to 10 weeks of supply in the United States through stocking distributors.
An issue in early January could take up to 33 weeks to see disruptions in supply to installers depending on how much inventory is at each stage. It’s likely to expect potential disruptions starting at the end of May, but we have worked hard to assure supply for our customers. This example is illustrative (not exact lead time, it does simplify the situation) but gives you an idea of how to think about disruption. And meanwhile, there are ways to speed up shortages like air freight and other tactics that allow for quicker responses to issues if components supplies are available and factories are producing products as small as junction box wires.
That said, in other parts of the world who might be served by Chinese products, a shut down for three weeks in China means that if a company produces say $1 billion of solar products to serve a country, and there is demand, you could see a shortage of product from that supplier. This would impact their earnings as they would produce roughly 3 weeks less supply in a 52-week year, or roughly a 6% annual decrease that could be difficult to make up and also may cause a future shortage in quarterly earnings due to production loss.
Moreover, we would expect short term demand to slow due to labor availability and some consumption slowing. These scenarios are what Soligent has analyzed and planned for in order to support our customers with stability, even in hard times.
How does my solar & energy sales demand get impacted?
We don’t see large changes in commercial volumes in the United States due to the ease of signing a contract remotely. Though, labor could become sick and unavailable, slowing installation time frames and slowing earnings for installers.
Sales can also be slowed by the removal of face-to-face meetings as well as attention is focused on a “crisis management” mindset vs. a growth mindset. On the residential project front, we may see people fearful, slowing consumption and not opening their door to strangers.
As such, if you see appointment cancellations for your sales team, you can think about how your team can adapt. For example, people will be home to answer calls or do video calls more now than ever, even if they don’t answer the door. With such low-interest rates and markets that are in flux, solar and storage can provide not only a strong year over year return story but also security in a time of electricity and health uncertainty.
What should I do about it?
Our suggestions internally to our team is to treat this like a very nasty version of the flu. Get hand sanitizer, wipe surfaces with sanitized wipes and do activities that enhance your immune system (exercise, sleep, vitamins, avoiding drinking alcohol). For contingency plans for businesses, think through and appoint someone to create a plan around having to work remotely.
Think through how you will support your team if there are issues and care for them. Think through your personal time off policy to further support people. Thinking about your cash flow plan during a potential slow down and something that could last three to six months. McKinsey has done a great job making a checklist you can review and use as well as provided scenario planning for your business which you can find here.
My personal mantra on staying healthy
- Do not shake hands! Use a fist bump, slight bow or elbow bump, and try not to touch your own face.
- Use ONLY your knuckle or elbow to touch light switches and elevator buttons. When pumping gas, lift the dispenser with a paper towel or use a disposable glove.
- Avoid gripping handles on doors with your hands, open doors with your closed fist or hip unless there is no other way to open the door. This is especially important in public restrooms spaces.
- Use disinfectant wipes at the stores when they are available, including wiping the handle and child seat in grocery carts.
- Wash your hands with soap for 20 seconds and/or use a greater than 60% alcohol-based hand sanitizer whenever you are out in public.
- Keep a bottle of hand sanitizer available in your car and at each of your home’s entrances.
- Cough or sneeze into a disposable tissue and discard, and only use your elbow if you must. Once on clothing, the infectious virus that can be passed on for up to a week or more!
- Do laundry often to ensure the virus is killed on any clothing.
What I have stocked in preparation for a large scale spread to the U.S.:
- Latex or nitrile latex disposable gloves – use when going shopping, using the gasoline pump, and all other outside activity when you come in contact with contaminated areas.
- Disposable surgical masks – stock up and use them to help prevent you from touching your nose and/or mouth. The mask will not prevent the virus in a direct sneeze from getting into your nose or mouth — it is only to keep you from touching your nose or mouth.
- Hand sanitizers – The hand sanitizers must be alcohol-based and greater than 60% alcohol to be effective.
- Zinc Lozenges – Lozenges have been proven to be effective in blocking coronavirus from multiplying. Use as directed several times each day when you begin to feel any “cold-like” symptoms beginning.
I, as many others do, hope that this virus will be reasonably contained. That said, we don’t expect any drug or vaccines available to protect against the virus this year. As such, it comes to good hygiene and retraining yourself to not touch your face, use Purell, and get good sleep, exercise, and eat a healthy diet to stay healthy while avoiding things that weaken your system (stressing, sugar and alcohol).