Several solar stocks are under pressure on Wednesday after Roth Capital analyst Philip Shen said that the U.S. Customs and Border Protection detained products from a major solar company and required documentation to detail the source of quartzite, a raw material in the company’s supply chain. The analyst believes this could be “a major problem” for the U.S. solar industry as his checks suggest none of the module vendors have quartzite documentation.

INCREMENTAL NEGATIVE: In a research note to investors, Roth Capital analyst Philip Shen said he has learned that there has been a new UFLPA, or Uyghur Forced Labor Prevention Act, detention of products from an unidentified "large Tier 1" solar company and that  Customs and Boarder Protection is requiring documentation showing the source of the quartzite. He believes this is “a major problem” for the U.S. solar industry because his checks suggest none of the module vendors have quartzite documentation. Further, Shen thinks companies such as German polysilicon manufacturer Wacker Chemie and U.S.-based Hemlock Semiconductor may find it tough to provide this information. His checks suggest that while this issue can be solved, it is "non-trivial" and could take time.

The analyst sees this as “an incremental negative” for the U.S. solar industry, especially the utility scale segment, including Array Technologies (ARRY), Canadian Solar (CSIQ), JinkoSolar (JKS), FTC Solar (FTCI), Maxeon Solar (MAXN), Shoals (SHLS) and ReneSola (SOL). While he had upgraded Array and FTC Solar recently on the AntiCirc relief, Shen also did highlight UFLPA enforcement as a risk, and this risk may outweigh the AntiCirc relief. The residential solar names - such as Sunnova (NOVA), Sunrun (RUN), SunPower (SPWR), Sunlight Financial (SUNL), Enphase (ENPH), SolarEdge (SEDG) and Generac (GNRC) - may end up being challenged by this as well, said Shen.

UFLPA ENFORCEMENT: U.S. Customs and Border Protection has begun to enforce the Uyghur Forced Labor Prevention Act, which prohibits the importation of goods produced wholly or in part in the Xinjiang Uyghur Autonomous Region of China, or by certain entities affiliated with the XUAR, absent "clear and convincing evidence" that such goods were not produced with forced labor. This significantly heightens the risk that CBP will detain, exclude, or seize imported goods with a nexus to the XUAR, and impose penalties. XUAR is an area of 620,000 square miles and 25 million inhabitants in ‎Northwest China, which exports polysilicon and solar panels, in addition to agricultural products, fish, oil, minerals ‎and other items.

PRICE ACTION: In Wednesday morning trading, shares of Shoals have dropped 12%, while FTC Solar has slid over 11%, and both SunPower and ReneSola have slipped about 9%. Also lower are JinkoSolar, Sunnova, Canadian Solar, Sunrun, Array, Maxeon, Sunlight, Enphase, SolarEdge, and Generac.