If Tesla Motors' (NASDAQ:TSLA) buyout of SolarCity (NASDAQ:SCTY.DL) goes through as planned, it'll create a new paradigm for the U.S. residential solar market. SolarCity would be further integrated with energy storage and electric vehicles, and with its own solar panel manufacturing plant on the way sometime in the next two years, it could make almost everything it needs in-house.
There are sure to be winners and losers after such an alliance, and below I've outlined a few of the companies that should hate to see SolarCity acquired by Tesla Motors.
Will suppliers be squeezed out?
If Tesla is really going to get serious about energy and energy storage, it will likely start integrating components to cut costs and improve performance. And Tesla CEO Elon Musk clearly wants to make batteries a standard component of a solar power system.
If that's the case, I would worry about SolarEdge Technologies (NASDAQ:SEDG), a company that makes power optimizers and inverters that SolarCity uses today. SolarCity is its biggest customer, accounting for 24.6% of revenue in fiscal 2015.
A merger between SolarCity and Tesla Motors would bring more component development in-house as SolarCity works to incorporate more Powerwalls and completes its own panel manufacturing plant. I can't see why the combined company wouldn't want to squeeze out as many components as possible or move them in-house, putting a lot of pressure on SolarEdge.
Doubling down on solar panels
Central to Elon Musk's idea that Tesla Energy can make solar cool is SolarCity's Buffalo, New York, panel manufacturing plant. The facility is expected to make higher-efficiency solar panels than SolarCity currently installs, creating direct competition with some of its suppliers.
Trina Solar (NYSE: TSL) and Canadian Solar (NASDAQ:CSIQ) are two of the companies that could lose the most as SolarCity transitions to its own solar panels. They're both big suppliers to SolarCity and sell a significant portion of their wares to the U.S. market.
Solar-panel manufacturers need as many sources of demand as possible, and taking SolarCity or Tesla Energy out of the mix would be bad for them as a whole. We know that SolarCity's production plant is coming, but with it under Tesla Motors' umbrella, Elon Musk would, I think, double down on solar panels and squeeze suppliers even further out of the market.
Are big changes for solar ahead?
SolarCity is the dominant player in residential solar, so when it makes changes, the entire industry feels it. Coming under Tesla Motors' ownership would move the company to a more vertically integrated model, in which it would be designing and building more of its components to both lower costs and simplify system design.
Of course, the merger might not go through as planned, and SolarCity might remain independent, with its current strategy intact. At the end of the day, shareholders will have their say in this deal, and given the market's current reaction, they don't seem to like the idea of the two companies becoming one.