The U.S. solar industry continues to go through a rapid transition with companies rising and falling almost every week. I recently highlighted some more bankruptcies hitting the industry and that's a concern for investors.
This week, there were some interesting moves within companies and the whole industry. That's what I want to highlight in my recap, starting with a big name in solar stepping away from a company he helped make a household name.
Lyndon Rive out at Tesla
When Tesla (NASDAQ:TSLA) acquired SolarCity in 2016, it became apparent that Lyndon Rive's days at the company were numbered. He gave up $77 million in stock options as part of the buyout, a big sign the solar company was in trouble, and was clearly being pushed aside as Elon Musk took front and center with Tesla's renewable energy options. This week, he announced he'll leave in June.
The only major player still left at SolarCity is Peter Rive, who is reportedly now focused on the solar roof. Tesla has rapidly changed SolarCity's direction since the buyout and Lyndon Rive leaving is another sign Tesla's solar ambitions aren't going to be similar to SolarCity's.
The next trade battle
The U.S. solar industry has had a tumultuous relationship with imported solar panels, particularly from Chinese manufacturers, that are subsidized by state run banks. And that's led to some tariffs on Chinese imports -- which were largely unsuccessful because they weren't broad enough in scope -- but the industry has essentially decided it'll take cheap panels if China wants to supply them. That's bad for manufacturers, but there are hundreds of thousands of jobs in solar, mostly in installing solar panels, and cheap panels make those installations possible and solar energy cheaper.
When small, Georgia based and Chinese owned, manufacturer Suniva went bankrupt it filed a Section 201 petition under the 1974 Trade Act, asking for a $0.40 per watt tariff on imported solar cells and a price floor of $0.78 per watt for panels. That would effectively double the cost of solar panels in the U.S.
This week the Solar Energy Industries Association had a call with reporters that predicted a successful petition could kill the solar industry in the U.S. It's been a topic on conference calls by First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR), so everyone is worried.
With nearly every company in the solar industry fighting against Suniva's position and hundreds of thousands of jobs at stake, I don't think this will end with big tariffs for the solar industry. But if it does, First Solar will benefit from its manufacturing in Ohio and Tesla could also from its Buffalo, New York facility, depending on how rules are written and where raw materials are supplied from. SunPower didn't seem worried about the petition, but with a large majority of its manufacturing in Mexico and elsewhere abroad, it could take a hit if a big tariff is put in place. This is something for investors to keep an eye on in 2017, even if the odds of a detrimental ruling are fairly low. The President of the United States can implement tariffs if he wants and President Donald Trump been unpredictable and hostile to renewable energy thus far in his tenure.
Residential solar struggled in Q1
GTM Research and the SEIA have released preliminary data from their Q2 2017 U.S. Solar Market Insight report and it shows a 17% decline in residential solar capacity installation in the U.S. and a 31% decline in California, the industry's biggest market, to just 196 MW in the first quarter of 2017.
Tesla and Vivint Solar (NYSE:VSLR) are shifting to a more sales and loan focused strategy with an emphasis on profit over growth, which is helping drive some of the decline. After years in turbo growth mode it may have been time for the industry to take a step back and think more about how to build profitable businesses, particularly after a number of residential bankruptcies and business exits in recent months.
It seems like every part of the solar industry is going through turmoil and financial difficulty as companies try to develop sustainable business models. Short term, that makes for a tough investing space, but long term the survivors should be in a better position to grow profitably. In residential solar, the decline in sales may be worth it if overall profitability goes up, something companies think they're doing today.