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With SolarCity Cuts, Elon Musk’s Magic May Be Wearing Thin

Posted by hkarner - 23. August 2016

Date: 22-08-2016
Source: Technology Review

As demand for its rooftop solar panels slows, SolarCity cuts costs and seeks a fundamentally new strategy.

Residential solar provider SolarCity has announced layoffs and cost-cutting measures, only a few weeks after Tesla Motors announced plans to acquire it. The move is one of several good reasons to be skeptical about whether Elon Musk’s “master plan” to unite the two money-losing companies is, in fact, good business.

In a statement Wednesday, the company said, “We fully expect to grow again in 2017, but we must reduce costs in the short term to be in position to do so.” Combined with Musk’s comments on the company’s discouraging earnings call earlier this month and recent developments in the residential solar market, the moves seem like not just a temporary cost-cutting measure but a worrying sign of deeper trouble.

SolarCity is struggling to find a business model to replace the 20-year leases that fueled the company’s growth but have become increasingly unpopular with both banks and customers. Less than three months ago, it introduced a loan program designed to attract customers who prefer to purchase rather than lease their panels, but that offering has failed to shore up flagging demand for SolarCity’s product.

Musk CCElon Musk

Musk’s grand vision for an integrated solar-plus-electric-vehicle behemoth, meanwhile, looks increasingly like a reality distortion field. The opening of the massive solar-panel factory the company is building in Buffalo, New York, has already been pushed back to mid-2017. Some analysts have estimated that the factory is likely to lose as much as $150 million a year once it reaches full production.

What’s more, there is little indication that huge numbers of people are clamoring for the ability to equip their homes with SolarCity panels, a Tesla Powerwall battery, and a charging system for their Teslas. In short, SolarCity’s latest moves could be a signal that merging two companies with combined 2015 losses of $1.6 billion might not be such a great idea after all.

SolarCity and other rooftop solar providers rolled to early success on a river of easy money, as banks, emboldened by generous federal subsidies, showed their willingness to underwrite customer-friendly lease deals. The extension of the investment tax credit late last year heralded a new phase of strong growth for solar power, but companies like SolarCity and SunEdison, which filed for bankruptcy in April, have had a hard time benefiting from it as their market continues to change underneath them. Mostly ignored in yesterday’s layoff news was a separate filing in which the company said it will offer up to $124 million in “solar bonds”—at terms much less favorable to the company than previous such offerings.

SolarCity’s restructuring may well be looked back on as the first wobble that presaged the collapse of Musk’s would-be electric empire.

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