Canadian Solar (CSIQ) experienced a sharp decline of 8.03% during Tuesday's trading session, as the U.S. solar energy sector faced a potential setback from proposed changes to tax legislation. The stock's plunge was part of a broader selloff in solar stocks, triggered by modifications to President Donald Trump's sweeping tax-cut and spending bill.

The primary catalyst for the selloff was a draft bill circulated by the U.S. Senate Finance Committee, which includes provisions to phase out solar and wind energy tax credits by 2028. This proposed legislation, part of Trump's "One Big, Beautiful Bill Act," envisions reducing the incentives to 60% of their value in 2026 and completely eliminating them by 2028. The current law, established by the Biden-era 2022 Inflation Reduction Act, wouldn't start phasing out these credits until 2032.

While Canadian Solar is not a U.S.-based company, it is heavily involved in the U.S. solar market and is likely to be significantly impacted by these potential changes. The news comes at a particularly challenging time for the U.S. residential solar market, which is already grappling with weak demand due to high interest rates and recent metering reforms in California, a key market for solar energy. Analysts from Citi have maintained a "sell" rating on residential solar stocks, highlighting the ongoing pressures faced by the industry. As the solar sector confronts these headwinds, investors will be closely monitoring how companies like Canadian Solar adapt to the changing regulatory landscape and market conditions.