Baillie Gifford's Major Sell-Off Highlights Enphase's Deepening Transition Pains

What happened

Baillie Gifford cut its position in Enphase Energy by 70.3% during Q3 2025, selling over 6.3 million shares amid growing concerns over the company's structural challenges. This move aligns with the DeepValue report's assessment that Enphase faces a projected 60% collapse in its core U.S. cash/loan residential market due to expiring tax credits and policy headwinds. The company is also struggling with tariff impacts on Chinese-sourced batteries, which shave 6-8 percentage points off gross margins and complicate diversification efforts. Despite a strong balance sheet and technology moat, revenue is expected to trough near $250 million in Q1 2026, with uncertainty around successful pivots to TPO and non-U.S. markets. The sell-off reflects institutional skepticism that Enphase can navigate these headwinds without sustained earnings pressure.

Implication

Investors should interpret this sell-off as a critical signal that even patient, long-term holders are retreating due to Enphase's unresolved transition risks. The stock's valuation at 24x trailing EPS remains elevated given the guided revenue trough and persistent margin compression from tariffs. Until Enphase demonstrates tangible progress in diversifying battery supply away from China and growing TPO revenue share, downside risks from policy and competitive pressures outweigh upside potential. While the strong balance sheet provides a liquidity buffer, it may not offset structural declines if the company fails to adapt its business model effectively. Therefore, maintaining a cautious 'WAIT' stance is prudent, with entry points better defined after evidence of margin stabilization and revenue mix shift in coming quarters.

Thesis delta

The Baillie Gifford sell-off does not fundamentally alter the investment thesis but accentuates the urgency of Enphase's challenges. It suggests that institutional investors are pricing in a more protracted or painful transition than previously anticipated, reinforcing the recommendation to wait for concrete signs of execution before considering an investment. This event highlights the critical need for Enphase to deliver on its diversification plans to regain market confidence.