San Jose, Calif.-based solar panel manufacturer SunPower (SPWR) - Get Report sent shock waves through the industry this week when it said it would be deep in the red at year's end.

The company, which was initially expected to break even or profit as much as $50 million in 2016, saw its stock crash 30% on the news, and with it came the stocks of First Solar (FSLR) - Get Report, SolarEdge Technologies (SEDG) - Get Reportand Canadian Solar (CSIQ) - Get Report . These stocks closed down between 3.5% and 10% Wednesday, though SolarEdge gained back 7% Thursday, First Solar gained back about 1% and Canadian Solar ticked further down.

SunPower blamed tax incentives for its early 2016 woes, saying Tuesday that solar farm project owners are lax on finishing products in due haste now that these players are eligible for the 30% tax credit on investments through 2020. 

The solar cell maker, however, is among many U.S. companies that face a larger issue in 2016: China.

German solar equipment maker SMA Solar, for instance, said Thursday it would shut down production sites in Denver and Cape Town, South Africa due to pricing pressure caused by Chinese competitors.

"The acceleration... has been unexpectedly strong in recent weeks," said SMA Chief Executive Pierre-Pascal Urbon in a statement on Thursday.

Axiom Capital's James Bardowski said as China's second half solar demand has fallen off a cliff. He said the bulk of tier-1 Chinese vendors, such as Trina Solar (TSL) and JA Solar (JASO) , predict more shipments to the U.S. in the second half.

That's bad news for U.S. solar panel manufacturers like SunPower and First Solar, who will have to compete on lower prices, he said.

The expected increase in supply from China is driving down prices for solar panel components, as well. Bardowski noted prices for multicrystalline solar wafers and multicrystalline wafer-based solar cells, are down about 64.29% and 92.74% on an annualized basis.

While the U.S. has typically fought off this oversupply with taxes on exports from these Chinese solar companies, according to Pierre Maccagno, a 20-year, veteran industry analyst who has formerly worked with Northland Securities, Dougherty and Needham, China is taking advantage of a major wrinkle in the way the U.S. does trade with Asia.

The move by Chinese producers to circumvent U.S. tariffs has played out over the past several years. In March, Trina Solar launched operations at its 700 megawatt cell and 500 megawatt module production facility in Thailand, while JinkoSolar's (JKS) - Get Report500 megawatt cell and 450 megawatt module Malaysian factory came online in mid-2015.

The U.S. is unlikely to circumvent Chinese manufacturer's loopholes by bolstering tariffs that would hinder supply from such domiciles, especially Malaysia, where a number of U.S. companies' semiconductor facilities are located, Maccagno added.

Indeed, Intel (INTC) - Get Report, Advanced Micro (AMD) - Get Reportand Texas Instruments (TXN) - Get Reportall have a manufacturing presence in Malaysia, according to the Malaysian Investment Development Authority.

SunPower appears to combating this momentum by moving its supply closer to end-markets to cut costs. The San Jose, Calif.-based company said it plans to close a Philippine solar panel assembly facility, move the equipment to Mexico and layoff 1,200 employees---about 15 percent of its overall workforce.

But with the sweeping restructuring came with a revised full year guidance of a $175 million loss, down from previous projections of as much as $50 million. JPMorgan (JPM) - Get Report and Deutsche Bank (DB) - Get Report analysts subsequently cut their ratings of the stock to Neutral and Hold, respectively.

SMA Solar and SunPower downplayed their restructurings as a move to position themselves for a medium-term industry rebound.

Yet even with increased supply and potentially lower costs coming down the pike, it may continue to be a gloomy outlook for the U.S. solar market for quite some time. 

The extension of certain U.S. tax incentives on solar investments through 2020 may have provided an early boost to companies like Southern (SO) - Get Report and Duke Energy (DUK) - Get Report, which buy large solar farm projects usually after the design stage and may have been among those rushing to finish projects by the end of 2016 when tax credits were originally set to expire, but it is clear from SunPower's Tuesday remarks that it may be hindering near-term earnings for some U.S. solar equipment providers.

Demand for rooftop solar panels is cooling, according to Bardowski, as evidenced by California's rooftop solar applications, which he said were down 28.1% year-over-year in May. Axiom said California is the single biggest solar market and is the best leading indicator to future rooftop demand. 

One of the largest rooftop solar-levered players, SolarCity (SCTY) , reported second quarter results that were nothing to write home about, and followed them up with third quarter guidance of just 170 megawatts in installations. The company also has lowered full-year guidance to between 900 megawatts and 1000 megawatts.

While build-out costs go down, Bardowski also noted that it could mean SolarCity's so-called growth story could be coming to an end just as the company is set to be swallowed by its co-founder Elon Musk's electric automobile behemoth Tesla (TSLA) - Get Report.

SolarCity's cash balance fell to $145.7 million versus its total recourse debt of more than $1.5 billion. With this news coming from the market leading rooftop developer, Bardowski says it's easy to see how smaller residential solar players like Sunrun (RUN) - Get Reportand Sunworks (SUNW) - Get Report could also be exposed to the negative impact of decreased demand.

A reduction in demand from residential customers in turn reduces the demand for solar panels from installers, which gives the SunPower's and SolarEdge's of the world further headaches. 

Industry followers are uncertain about when the market will hit bottom and what type of catalyst is needed to turn the momentum around.

But with 76 of the 115 companies in the NYSE's Bloomberg Global Solar Energy Index down, and the index itself yielding a negative 26.57% return in the past year, one thing is certain: Investors should probably sit tight, for now.