Yesterday’s news of a $35,000 Model 3 offering and the shuttering of most of Tesla’s retail outlets might look like streamlining and a promise kept for fans of the electric vehicle company. For short sellers, the news looks like layoffs and discount liquidation.
For solar fans, it looks like the end of the solar line for Tesla.
Elon Musk's car company acquired (or, arguably, rescued) SolarCity, once the world’s largest residential solar installer, in late 2016 for $2.6 billion in stock and the assumption of approximately $3 billion in debt.
Since then, solar installations have plunged at Tesla. According to data from Wood Mackenzie Power & Renewables, Tesla’s residential solar installation market share has dropped from 33.5 percent a few years ago to 9.1 percent, allowing Sunrun to clinch the title of market leader. Tesla deployed 73 megawatts of PV in the last quarter of 2018 compared to the 272 megawatts SolarCity installed in the last quarter of 2015. And Tesla’s guidance for solar deployments for this quarter is down.
Tesla has dramatically changed its solar sales strategy over the last few years. SolarCity's door-to-door sales channel was dropped, as was its in-store partnership with Home Depot. Tesla was intent on selling solar (and energy storage) exclusively at its 100-plus Tesla stores and online.
The firm hoped to grow solar sales with the "cross-selling potential" between its vehicles and its residential solar and battery products. In practice, that means asking the new owner of a $35,000+ Tesla Model 3 to spend another $25,000 for a solar and storage system.
But now Tesla is shifting all sales online and shutting down "many of its stores," while keeping a "small number of stores in high-traffic locations remaining as galleries, showcases and Tesla information centers."
In a note to employees obtained by CNBC, Musk wrote, “Last year, 78 percent of all Model 3 orders were placed online, rather than in a store, and 82 percent of customers bought their Model 3 without ever having taken a test drive.”
This drastic move was meant to cut down on expenses and improve operational efficiencies to allow Tesla to sell a $35,000 Model 3 at a profit. Whether this is truly how people want to shop for cars or solar will be decided in the coming weeks and months.
Musk acknowledged that there would be layoffs amid the store closings, that there was “no way to achieve savings otherwise.” When asked, Musk said that the exact number of people being laid off was “not today’s topic.” Tesla laid off 9 percent of its workforce in June of last year and another 7 percent last month.
Promises of profits
Musk gave a Q1 profit warning and outlook for Q2 at the invite-only media event yesterday. This may not be in accord with SEC’s rules on announcements of material events. The Q1 profit warning comes despite Musk’s numerous forecasts that all quarters going forward would in fact be profitable.
"Given that there is a lot happening in Q1, and we are taking a lot of one-time charges, there are a lot of challenges getting cars to China and Europe, we do not expect to be profitable. We do think that profitability in Q2 is likely," said the CEO.
The solar roof mirage
Musk did not address the solar roof product in yesterday’s testy briefing. Back in October 2016, GTM warned of the pitfalls of integrated solar roof tiles after Musk unveiled the product on the set of a TV show. Experts calculated the potential costs of a solar-shingled roof.
Now, two-and-a-half years later, and after having received deposits from interested homeowners, Tesla has connected just a dozen or so solar-integrated roofs to the grid — despite Musk’s claim that there were “several hundred homes with solar roofs,” according to reporting from CNBC and Reuters.
Tesla plans to ramp up the production of the solar roof with "significantly improved manufacturing capabilities during 2019” at the Potemkin factory in Buffalo, New York. Cynics have suggested that the goal of the solar roof rollout was not grid decarbonization, but rather cover for the $2.6 billion SolarCity acquisition and the eventual demise of this once world-leading product line.
Tesla stock price is down 7.8 percent on Musk's latest news.