Summary
- Tesla solar rental product is disruptive to the residential solar industry. We discuss the vectors that will likely drive big changes in the industry.
- Tesla is unlikely to make any money on the product but is likely to drive significant volumes and revenues.
- We expect this development to have serious negative consequences for other residential installers such as Sunrun, Vivint Solar, SunPower, and Sunnova.
- This idea was discussed in more depth with members of my private investing community, Beyond The Hype. Get started today »
Tesla (TSLA) launched a new solar rent product on Friday. With $100 deposit which will be applied to the first month payment and no long-term contract, this product has the potential to disrupt residential solar market. We see several solar installation companies being negatively affected and see expect a stock price downdraft at these companies.
This article evaluates the product and the implications of this product launch.
First, Some Background
Ever since Tesla's acquisition of SolarCity, the new entity's solar installation business has witnessed an exponential decay. After about 90% drop in installations in 3 years, the Company now find itself third in the list of publicly traded residential installers (image below from Wood Mackenzie).
Due to the low installation rate, Tesla now is swimming in overcapacity at the Buffalo solar module factory, which is currently being run by Panasonic (OTCPK:PCRFY). With Tesla Q2 solar installations at 29 MW and Buffalo factory capacity at 1 GW per year, Panasonic may not be able to continue running the Buffalo fab for much longer. There are already rumors that Panasonic is evaluating its options. Tesla needs to do something to rectify the situation. Quickly.
At the current level of demand, Tesla has a hard choice to make: walk away from the solar business or turn it around and drive growth. Walking away from Buffalo fab may not be an easy option for Tesla. In addition to having to pay about $41M per year in fines to the State of New York, Tesla will also have an uphill task of convincing investors suing Tesla and CEO Elon Musk about the SolarCity acquisition. As such, Elon Musk was scheduled to be deposed on the subject on August 10th. The timing of this product launch within a week after the deposition is suspect.
It appears that Tesla was left with few options but to find a way to grow its residential solar business. In context, the intended purpose of this new product appears to be to drive growth.
Solar Rental Product
The solar rental product is a simple and elegant product from a customer perspective. Tesla will install the system on customer's rooftop at virtually no charge to the customer. Customers have no down payment, other than the $100 deposit that will be applied to the first month payment, to get the ball rolling.
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