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2021-08-24

Inside The Deterioration Of Tesla's Solar Business

Tesla's $670 billion market cap is based in part on the belief that it is "more than a car company"; Tesla's solar energy business has fed this narrative.While treated like a value-add by Tesla's boosters, its solar unit has in practice been a costly millstone; margins remain deeply negative.Tesla's solar deployments have fallen far from highs set years ago, with little prospect of a reversal.Hopes that Tesla's Solar Roof could reinvigorate deployment rates have faded amid multi-year delays and

Inside The Deterioration Of Tesla's Solar Business

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(NASDAQ:TSLA) for a while. I have covered numerous subjects related to the electric vehicle (“EV”) company over the years, but I have returned often to one in particular: Tesla’s solar energy business.\nIt has been a while since I lasttook a look under the hoodof Tesla’s solar division. With the first two quarters of 2021 in the rearview mirror, it feels like now is a good time to revisit the long-struggling business unit.\nMuch has changed for Tesla Solar in 2021, little of it for the good. Let’s discuss why this is the case.\nSolar Deployments In H1 2021: Still In A Long-Term Downtrend\nAs I have&nbsp;discussed at length&nbsp;on&nbsp;numerous occasions&nbsp;over the years, Tesla Solar has been in material multi-year decline from a deployments perspective. Thus, when Tesla reported Q1 2021 earnings, I naturally looked to the solar deployment numbers to see if the negative pattern had continued. As it turned out, Tesla had managed to achieve a major sequential jump in deployments, a fact the company was quick tocrow about in its Q1 investor letter:\n<blockquote>\n “Solar Retrofit and Solar Roof Solar deployments reached 92 MW in Q1, our strongest quarter in 2.5 years. Solar Roof deployments grew 9x compared to the same period last year.”\n</blockquote>\nTesla reported solar deployments to the tune of 92 megawatts (“MW”) in Q1, the most it had managed in years. Under the circumstances, Tesla can hardly be blamed for having wanted to highlight such a marked improvement in chart form:\n<img src=\"https://static.tigerbbs.com/7270ea980168a8e2976a38fd80b6b5c7\" tg-width=\"640\" tg-height=\"335\" width=\"100%\" height=\"auto\">Source: Tesla Inc.\nThe chart above, which was included in the Q1 investor letter, certainly looks like it could be a sign of a turnaround in the making. However, its relatively limited timescale also limits its usefulness to investors and analysts interested in understanding the long-term performance and trajectory of Tesla's solar business. Charting the full history of Tesla's quarterly solar deployments through Q1 2021 offers a rather different perspective:\n<img src=\"https://static.tigerbbs.com/dab180dd817e9d4db21ed6ff4014e0d7\" tg-width=\"640\" tg-height=\"273\" width=\"100%\" height=\"auto\">Source: Author; Tesla Inc.\nI hardly have to remind investors that one quarter of growth does not a pattern make. If Tesla could sustain that growth into Q2, then one might be able to talk legitimately about a turnaround. As it turned out, Tesladeployed just 85 MW in Q2, a more than7.5% sequential drop:\n<img src=\"https://static.tigerbbs.com/43e076db4124ae5b339c1c78e6f33502\" tg-width=\"640\" tg-height=\"463\" width=\"100%\" height=\"auto\">Source: TeslaCharts; Tesla Inc.\nTesla's solar deployments were not just lower in Q2 than in Q1, however. At 85MW, Tesla actually managed one 1MW less than it did in Q4 2020, despite seasonal impacts traditionally weakening year-end solar deployment rates. That would seem to put paid to any notion that Tesla's solar operations have been making a significant or sustainable turnaround.\nDeployments may have climbed significantly from their nadir in the first half of last year, but they remain a pale shadow of what Tesla was managing five years ago. They are also radically lower than what Tesla itself hadprojected in 2016when it was in the process of acquiring SolarCity:\n<img src=\"https://static.tigerbbs.com/a0a31640e43eea612f1ca8aba8bea3ae\" tg-width=\"498\" tg-height=\"466\" width=\"100%\" height=\"auto\">Source: @C_S_Skeptic; GLJ Research; Tesla Inc.\nIn 2016, Tesla was predicting solar deployments in excess of 500MW per quarter starting in 2017. We are now mid-way through 2021 and quarterly solar deployment levels stand at less than 20% of that figure.\nProduct Progress: Solar Roof Still Not Ready For Prime Time\nUnveiled with great fanfare in October 2016,the Solar Roof was touted from the start as the future of solar energy technology. At the time, CEO Elon Musk was insistent that the Solar Roof was not merely a concept in development, but was actually a fully functional technology ready to enter full-scale production. Musk told his rapt audience that the acquisition of SolarCity would facilitate the rapid rollout of the Solar Roof, providing one of the first public justifications for the merger between Tesla and the virtually insolvent solar installer that had been founded by two of Musk's cousins, and of which Musk was then chairman of the board of directors.\n<img src=\"https://static.tigerbbs.com/e0e6430233a156f81e842006c4eac751\" tg-width=\"640\" tg-height=\"302\" width=\"100%\" height=\"auto\">Source: Tesla Inc.\nThe Solar Roof unveiling event may have helped smooth the way for the SolarCity tie-up, but it did so at the price of full transparency about the technology's readiness. Musk's claim about the Solar Roof's immediate viability was proven false in short order, as it quickly became apparent that the Solar Roof was still very much a concept in development, and with little near-term prospect of commercialization. Even then, few could have guessed how long that design and development process would take.\nA review of the progress to date on the long-promised but oft-delayed Solar Roof reveals a business reality far different from what has long been promised by Tesla’s solar cheerleaders. In the years since it was unveiled, the Solar Roof has gone through multipleredesigns and rebrands, even as Musk has repeatedly assured investors and the public that full-scale commercial production was imminent. In March 2019, he declared that 2019 would be \"the Year of the Solar Roof.\" In July of the same year, Musk tweeted that Solar Roof production wasaccelerating toward 1,000 units roofs per week:\n<img src=\"https://static.tigerbbs.com/6bbff17a88092785ef1227e94c6e8f19\" tg-width=\"640\" tg-height=\"251\" width=\"100%\" height=\"auto\">Source: Elon Musk; Twitter\nThis claim raised plenty of eyebrows in the investment community. Their skepticism proved well deserved as it soon became apparent that the actual Solar Roof production and installation rates were far lower. Even Electrek, a website well known for its consistently bullish Tesla commentary, felt compelled to call Musk out on his claim. According to Electrek, Musk's tweet was \"a bit of an exaggeration\" and that the actual production rate at the time was closer to 500 Solar Roofs per week. However, even that reduced projection appears to overstate the level of steady-state production and installation by a significant margin.\nThe Solar Roof has seen its fortunes improve little in 2021 thus far. According to renewable energy industry journalist Eric Wesoff, Tesla had&nbsp;yet to install 1,000 Solar Roofs total&nbsp;as recently as this April. This pessimistic view was further reinforced last month when the Wall Street Journal&nbsp;reported&nbsp;that the Securities and Exchange Commission had already confronted Tesla over Musk's dubious prior Solar Roof claims:\n<blockquote>\n “In correspondence sent to Tesla in 2019 and 2020, the SEC said tweets Mr. Musk wrote about Tesla’s solar roof production volumes and its stock price hadn’t undergone the required preapproval by Tesla’s lawyers. The communications, which haven’t been previously reported, spotlight the running tension between the nation’s top corporate regulator and Mr. Musk, who publicly mocked the SEC even after settling fraud claims with the agency. The SEC told Tesla in May 2020 that the company had failed ‘to enforce these procedures and controls despite repeated violations by Mr. Musk.’ The letter, signed by Steven Buchholz, a senior SEC official in its San Francisco office, added: ‘Tesla has abdicated the duties required of it by the court’s order.’\"\n</blockquote>\nWhether installation speed has picked up meaningfully over the past few months is unclear thanks in no small part to Tesla's inconsistency with regard to reporting on the subject. Thus, while Tesla's Q1 investor letter boasted that Solar Roof installations \"grew 9x compared to the same period last year,\" it neglected to provide an exact number of MW deployed. The Q2 update offered still less clarity, failing to mention even the growth rate other than to say that deployments \"grew substantially\" on a sequential and year-over-year basis.\nInvestor's Eye View\nWhatever way you slice it, Tesla’s seemingly endless struggle to launch a viable solar roof product at scale is problematic for a company that is valued based on a highly optimistic growth narrative. Tesla's market capitalization, which currently stands in excess of $670 billion, is nearly five times greater than that of Volkswagen AG (OTCPK:VWAGY), the world's largest automaker. That is in spite of the fact that Tesla currently has barely 5% of Volkswagen's annual automotive production capacity. In other words, Tesla is currently priced as if it will not only surpass the likes of Volkswagen in terms of production and sales volume, but will radically exceed them.\nWhile irrational exuberance about an EV-dominated future can explain some of Tesla's eye-watering share price, it is not the only factor. Tesla's valuation is also the result of the company's efforts to position itself as \"more than a car company.\" Solar has always been a core component of this narrative, yet it has failed to live up to the hype. Deployments remain far below the highs set half a decade ago, even as&nbsp;customer satisfaction&nbsp;has continued to fall.\nMoreover, the fundamental economics of Tesla's solar operations have always been shaky at best. Indeed, even as Tesla's automotive operations have inched toward breakeven, the&nbsp;margins for its solar business remain painfully negative. That is hardly a glowing endorsement of a business unit that is supposed to add to Tesla's value proposition, not detract from it.\nIn sum, Tesla's valuation is the product of high expectations and belief in the company's ability to expand its offerings far beyond the conventional automotive realm. Based on the performance of its solar energy business to date, it would seem prudent to revise some of those expectations downward.","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Inside The Deterioration Of Tesla's Solar Business</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nInside The Deterioration Of Tesla's Solar Business\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-24 11:55 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4451383-inside-the-deterioration-of-teslas-solar-business>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nTesla's $670 billion market cap is based in part on the belief that it is \"more than a car company\"; Tesla's solar energy business has fed this narrative.\nWhile treated like a value-add by ...\n\n<a href=\"https://seekingalpha.com/article/4451383-inside-the-deterioration-of-teslas-solar-business\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"TSLA":"特斯拉"},"source_url":"https://seekingalpha.com/article/4451383-inside-the-deterioration-of-teslas-solar-business","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1187997976","content_text":"Summary\n\nTesla's $670 billion market cap is based in part on the belief that it is \"more than a car company\"; Tesla's solar energy business has fed this narrative.\nWhile treated like a value-add by Tesla's boosters, its solar unit has in practice been a costly millstone; margins remain deeply negative.\nTesla's solar deployments have fallen far from highs set years ago, with little prospect of a reversal.\nHopes that Tesla's Solar Roof could reinvigorate deployment rates have faded amid multi-year delays and persistent installation bottlenecks.\nAs Tesla's solar business fades, it may threaten the company's broader growth narrative, as well as its vaunted share price.\n\nRoschetzkyIstockPhoto/iStock Editorial via Getty Images\nAs any of my longtime readers can undoubtedly attest, I have been tracking Tesla Inc. (NASDAQ:TSLA) for a while. I have covered numerous subjects related to the electric vehicle (“EV”) company over the years, but I have returned often to one in particular: Tesla’s solar energy business.\nIt has been a while since I lasttook a look under the hoodof Tesla’s solar division. With the first two quarters of 2021 in the rearview mirror, it feels like now is a good time to revisit the long-struggling business unit.\nMuch has changed for Tesla Solar in 2021, little of it for the good. Let’s discuss why this is the case.\nSolar Deployments In H1 2021: Still In A Long-Term Downtrend\nAs I have discussed at length on numerous occasions over the years, Tesla Solar has been in material multi-year decline from a deployments perspective. Thus, when Tesla reported Q1 2021 earnings, I naturally looked to the solar deployment numbers to see if the negative pattern had continued. As it turned out, Tesla had managed to achieve a major sequential jump in deployments, a fact the company was quick tocrow about in its Q1 investor letter:\n\n “Solar Retrofit and Solar Roof Solar deployments reached 92 MW in Q1, our strongest quarter in 2.5 years. Solar Roof deployments grew 9x compared to the same period last year.”\n\nTesla reported solar deployments to the tune of 92 megawatts (“MW”) in Q1, the most it had managed in years. Under the circumstances, Tesla can hardly be blamed for having wanted to highlight such a marked improvement in chart form:\nSource: Tesla Inc.\nThe chart above, which was included in the Q1 investor letter, certainly looks like it could be a sign of a turnaround in the making. However, its relatively limited timescale also limits its usefulness to investors and analysts interested in understanding the long-term performance and trajectory of Tesla's solar business. Charting the full history of Tesla's quarterly solar deployments through Q1 2021 offers a rather different perspective:\nSource: Author; Tesla Inc.\nI hardly have to remind investors that one quarter of growth does not a pattern make. If Tesla could sustain that growth into Q2, then one might be able to talk legitimately about a turnaround. As it turned out, Tesladeployed just 85 MW in Q2, a more than7.5% sequential drop:\nSource: TeslaCharts; Tesla Inc.\nTesla's solar deployments were not just lower in Q2 than in Q1, however. At 85MW, Tesla actually managed one 1MW less than it did in Q4 2020, despite seasonal impacts traditionally weakening year-end solar deployment rates. That would seem to put paid to any notion that Tesla's solar operations have been making a significant or sustainable turnaround.\nDeployments may have climbed significantly from their nadir in the first half of last year, but they remain a pale shadow of what Tesla was managing five years ago. They are also radically lower than what Tesla itself hadprojected in 2016when it was in the process of acquiring SolarCity:\nSource: @C_S_Skeptic; GLJ Research; Tesla Inc.\nIn 2016, Tesla was predicting solar deployments in excess of 500MW per quarter starting in 2017. We are now mid-way through 2021 and quarterly solar deployment levels stand at less than 20% of that figure.\nProduct Progress: Solar Roof Still Not Ready For Prime Time\nUnveiled with great fanfare in October 2016,the Solar Roof was touted from the start as the future of solar energy technology. At the time, CEO Elon Musk was insistent that the Solar Roof was not merely a concept in development, but was actually a fully functional technology ready to enter full-scale production. Musk told his rapt audience that the acquisition of SolarCity would facilitate the rapid rollout of the Solar Roof, providing one of the first public justifications for the merger between Tesla and the virtually insolvent solar installer that had been founded by two of Musk's cousins, and of which Musk was then chairman of the board of directors.\nSource: Tesla Inc.\nThe Solar Roof unveiling event may have helped smooth the way for the SolarCity tie-up, but it did so at the price of full transparency about the technology's readiness. Musk's claim about the Solar Roof's immediate viability was proven false in short order, as it quickly became apparent that the Solar Roof was still very much a concept in development, and with little near-term prospect of commercialization. Even then, few could have guessed how long that design and development process would take.\nA review of the progress to date on the long-promised but oft-delayed Solar Roof reveals a business reality far different from what has long been promised by Tesla’s solar cheerleaders. In the years since it was unveiled, the Solar Roof has gone through multipleredesigns and rebrands, even as Musk has repeatedly assured investors and the public that full-scale commercial production was imminent. In March 2019, he declared that 2019 would be \"the Year of the Solar Roof.\" In July of the same year, Musk tweeted that Solar Roof production wasaccelerating toward 1,000 units roofs per week:\nSource: Elon Musk; Twitter\nThis claim raised plenty of eyebrows in the investment community. Their skepticism proved well deserved as it soon became apparent that the actual Solar Roof production and installation rates were far lower. Even Electrek, a website well known for its consistently bullish Tesla commentary, felt compelled to call Musk out on his claim. According to Electrek, Musk's tweet was \"a bit of an exaggeration\" and that the actual production rate at the time was closer to 500 Solar Roofs per week. However, even that reduced projection appears to overstate the level of steady-state production and installation by a significant margin.\nThe Solar Roof has seen its fortunes improve little in 2021 thus far. According to renewable energy industry journalist Eric Wesoff, Tesla had yet to install 1,000 Solar Roofs total as recently as this April. This pessimistic view was further reinforced last month when the Wall Street Journal reported that the Securities and Exchange Commission had already confronted Tesla over Musk's dubious prior Solar Roof claims:\n\n “In correspondence sent to Tesla in 2019 and 2020, the SEC said tweets Mr. Musk wrote about Tesla’s solar roof production volumes and its stock price hadn’t undergone the required preapproval by Tesla’s lawyers. The communications, which haven’t been previously reported, spotlight the running tension between the nation’s top corporate regulator and Mr. Musk, who publicly mocked the SEC even after settling fraud claims with the agency. The SEC told Tesla in May 2020 that the company had failed ‘to enforce these procedures and controls despite repeated violations by Mr. Musk.’ The letter, signed by Steven Buchholz, a senior SEC official in its San Francisco office, added: ‘Tesla has abdicated the duties required of it by the court’s order.’\"\n\nWhether installation speed has picked up meaningfully over the past few months is unclear thanks in no small part to Tesla's inconsistency with regard to reporting on the subject. Thus, while Tesla's Q1 investor letter boasted that Solar Roof installations \"grew 9x compared to the same period last year,\" it neglected to provide an exact number of MW deployed. The Q2 update offered still less clarity, failing to mention even the growth rate other than to say that deployments \"grew substantially\" on a sequential and year-over-year basis.\nInvestor's Eye View\nWhatever way you slice it, Tesla’s seemingly endless struggle to launch a viable solar roof product at scale is problematic for a company that is valued based on a highly optimistic growth narrative. Tesla's market capitalization, which currently stands in excess of $670 billion, is nearly five times greater than that of Volkswagen AG (OTCPK:VWAGY), the world's largest automaker. That is in spite of the fact that Tesla currently has barely 5% of Volkswagen's annual automotive production capacity. In other words, Tesla is currently priced as if it will not only surpass the likes of Volkswagen in terms of production and sales volume, but will radically exceed them.\nWhile irrational exuberance about an EV-dominated future can explain some of Tesla's eye-watering share price, it is not the only factor. Tesla's valuation is also the result of the company's efforts to position itself as \"more than a car company.\" Solar has always been a core component of this narrative, yet it has failed to live up to the hype. Deployments remain far below the highs set half a decade ago, even as customer satisfaction has continued to fall.\nMoreover, the fundamental economics of Tesla's solar operations have always been shaky at best. Indeed, even as Tesla's automotive operations have inched toward breakeven, the margins for its solar business remain painfully negative. That is hardly a glowing endorsement of a business unit that is supposed to add to Tesla's value proposition, not detract from it.\nIn sum, Tesla's valuation is the product of high expectations and belief in the company's ability to expand its offerings far beyond the conventional automotive realm. Based on the performance of its solar energy business to date, it would seem prudent to revise some of those expectations downward.","news_type":1},"isVote":1,"tweetType":1,"viewCount":383,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":1,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}

Inside The Deterioration Of Tesla's Solar Business

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