- SolarCity dominated the rooftop solar industry in the years before it was acquired by Tesla in 2016.
- Now the firm, part of Tesla's energy business, has just about 5% of the market, according to the research firm Wood Mackenzie.
- What happened? SolarCity was a huge solar installer, but it was struggling financially when Tesla bought it.
- Tesla diverted resources away from SolarCity following the acquisition to focus on the Model 3, according to analysts interviewed for this story.
- The coronavirus pandemic has slowed installations, the company said.
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Just five years ago, a Silicon Valley company founded by two of Elon Musk's cousins ruled rooftop solar.
In 2015, SolarCity controlled more than a third of the market for residential solar and installed a whopping 870 megawatts, according to the research firm Wood Mackenzie. The second-largest company at the time, Vivint Solar, had just 11% market share.
Then, a year later, when SolarCity was struggling financially, Tesla bought it.
In the years that followed, SolarCity's installations fell, dipping to a mere 29 megawatts last spring. Installations were slightly up in the second half of the year, only to fall even lower once the coronavirus began to spread.
On Wednesday, Tesla said it installed just 27 megawatts of solar from April to June — its lowest deployment per quarter, ever.
Competition is also heating up. Earlier this month, the leading rooftop-solar company Sunrun said it would buy the second-largest installer, Vivint Solar. The combined company would control at least 15% of the market.
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The pandemic is partially to blame for Tesla's recent slide. In its earnings call Wednesday, Tesla's CFO Zachary Kirkhorn said the closure of permit offices limited installation volumes.
But four analysts who spoke to Business Insider earlier this year — well before the coronavirus became a pandemic — said the company has long had problems with its solar offering and is unlikely to see major success in this line of business.
They also questioned whether the company's buzzy solar roof product would ever become mainstream, although Tesla said it tripled solar roof installations in the most recent quarter.
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The decline of SolarCity
SolarCity wasn't soaring when Tesla bought it in 2016. As several sources have already reported, the firm was saddled with debt in 2016, leading some investors to call the acquisition a bailout.
Tesla's CEO Elon Musk is scheduled to face a trial, tied to the deal, in which shareholders are seeking $2.6 billion in damages. Shareholders allege that Musk failed to "disclose the depth of SolarCity's problems, or their own conflicts," per Reuters. The trial, originally set for March, was delayed due to the coronavirus and a new date hasn't been set.
But since acquiring the firm, Tesla has done little to support the enormous lead the company once had. And several missteps have run it further into the ground, according to Gordon Johnson, an analyst at GLJ Research and well-known Tesla bear.
As Musk himself has acknowledged, part of the problem was that Tesla was focused on the production ramp for the Model 3 car at the time of the acquisition.
"For about 1.5 years, we unfortunately stripped Tesla Energy of engineering and other resources," Musk said in an earnings call last year.
It's hard to know exactly what other resources Musk is talking about, but it's clear that SolarCity's door-to-door sales team was, at some point, gutted in favor of other sales strategies, according to Michelle Davis, a senior research analyst at Wood Mackenzie. Plus, the firm ended its partnerships with major retailers like Home Depot, she said.
Selling solar panels is nothing like selling cars, analysts say
Tesla's solar competitors like Sunrun and Vivint Solar spend a lot on sales; as of earlier this year, a watt of solar energy cost about $3 in the US, and these businesses spend more than $1 per watt on customer acquisition, according to estimates from Wood Mackenzie.
Read more: Sunrun is set to inherit almost 200,000 new customers overnight. Its CFO tells us how the solar giant plans to turn them into profit.
Tesla has taken a different approach.
The firm has banked on a crossover sales strategy, said Jeff Osborne, a financial analyst at Cowen, whereby customers who are in the market for electric cars might also buy panels, either online or in a showroom.
But buying solar panels is far more complicated than purchasing a car, Osborne said.
"The idea of just going on a website and procuring solar or swinging by the mall and saying, 'I want to buy solar,' this $15,000-$25,000 purchase on average, is not something that happens in reality," he said. "I think that strategic goal failed."