Whatever the American public thought SolarCity Corp. (SCTY.DL) had planned for solar manufacturing in Buffalo, New York, was undercut with a single blog post from Tesla Motors (TSLA -6.42%) late last night. Here is what the Tesla Team had to say:
Tesla and Panasonic have entered into a non-binding letter of intent under which they will begin collaborating on the manufacturing and production of photovoltaic (PV) cells and modules in Buffalo, New York. Under this agreement, which is contingent upon shareholders' approval of Tesla's acquisition of SolarCity, Tesla will use the cells and modules in a solar energy system that will work seamlessly with Powerwall and Powerpack, Tesla's energy storage products.
Notably absent from the announcement were comments from SolarCity, any executives at SolarCity, or any mention of Silevo. And that should be shocking for everyone who has watched SolarCity's potential move into solar panel manufacturing.
What happened to Silevo?
In June 2014, SolarCity bought solar panel manufacturing start-up Silevo for $200 million with another $150 million due in potential earn-outs. Elon Musk touted the acquisition as a way to ensure supply and produce industry-leading efficiency solar panels, packing more energy production onto each roof. By fall 2015, SolarCity said, it had the "world's most efficient rooftop solar panel" based on technology acquired from Silevo, signaling that all was well in the solar manufacturing business.
The state of New York was so excited about the prospect of SolarCity's solar panel plans that it handed the company a $750 million subsidy to build a 1 GW solar manufacturing plant in Buffalo. The building would cost $350 million to build and the state would spend $400 million in equipment that SolarCity could use for free. SolarCity just had to pay $1 per year in rent (seriously, rent is $1) and employ 2,000 people after full production is reached, something that hasn't happened yet.
But all of this was based on the idea that SolarCity was going to build solar panels using Silevo's technology. Now, Tesla is saying that it's going to bring in Panasonic to build solar cells and modules. Silevo is apparently out. Was Silevo's technology too difficult to produce? Was it too expensive? Have there been problems all along? We don't know. (I have asked SolarCity's representatives for details about the Panasonic announcement, but there's been no answer as I write this.)
If Tesla does effectively write off Silevo's technology, it may actually have to write off Silevo's assets. And those would be at least $200 million for the acquisition, plus any capital equipment that's been installed but may not be used. But since the Tesla/Panasonic deal is contingent on the SolarCity acquisition closing, the writedown wouldn't occur until after the acquisition closes. It's become clear that Tesla would acquire assets that it would immediately write down, and that's not even the most complicated matter in this announcement.
What about New York's $750 million subsidy?
I mentioned that New York gave a subsidy of $750 million to SolarCity to build production in New York, including $400 million set aside for equipment. But if that equipment will now be Panasonic's equipment, it changes the game.
Panasonic's equipment wasn't part of the initial agreement with SolarCity, nor was Tesla's involvement with the company. And Panasonic is a foreign company setting up shop in the plant, which may not be looked upon as highly as SolarCity using Silevo technology to produce solar panels.
We don't know what would happen to the $750 million package SolarCity was given to set up in Buffalo, but it will certainly have to change if Panasonic moves in. Will that require more equipment writedowns? Will New York's subsidy to SolarCity have to be paid back if equipment isn't used? Will Panasonic be welcomed with open arms? We simply don't know.
Solar manufacturing is tough and SolarCity found out the hard way
The announcement that Tesla Motors is bringing in Panasonic equipment to SolarCity's Buffalo, New York, plant if the merger closes, was big news. It implies that Silevo's technology has turned out to be a poor investment for SolarCity.
Think about it: SolarCity and Silevo are apparently not able to make a cost-effective, high-efficiency solar module, despite getting a building and $400 million of equipment for free from the state of New York. That's how bad this announcement sounds for SolarCity's own solar manufacturing plans.
Tesla and SolarCity haven't given a lot of details about what Panasonic's move to Buffalo means for SolarCity's old solar plans. But make no mistake, they aren't good.