In the second quarter of 2016, SolarCity was on the top of its game in the U.S. residential solar market. The company installed 201 MW of solar and had a goal of hitting nearly 1,000 MW of solar installed for the year.
Oh, how the mighty have fallen.
Since Tesla's (NASDAQ:TSLA) $2.6 billion bailout of SolarCity later that year, things have been a lot rougher. Tesla fired hundreds, maybe thousands, of sales staff and installation crews that were key to SolarCity's strategy. The plan to move solar into the Tesla showroom hasn't been very fruitful, and there doesn't seem to be an easy home in the Tesla family for plain old residential solar sales. According to the recently released fourth-quarter results, Tesla only installed 87 MW of solar, an astonishing decline for such a large acquisition and another sign that solar may be slowly dying at Tesla.
Tesla's shrinking solar business
The 57% decline in installations over the past six quarters isn't surprising when you consider that Tesla undermined most of SolarCity's business. Most solar systems were sold via door-to-door sales, something Tesla began de-emphasizing almost immediately. Combined with the shift from leases to loans, the changing business model naturally lost momentum.
But Tesla would rather not have a dying solar business, because it has a major manufacturing facility being built in Buffalo, New York and the Powerwall to sell. Solar customers could become energy storage customers, and ultimately EV customers.
To try to get back in the game, Tesla is rolling out booths in 800 Home Depots and considering a similar deal with Lowe's. This may give Tesla more face time with customers, but booths in retail stores haven't been a driver of solar sales traditionally, and Tesla may have a hard time translating the booths into long-term sales growth.
Tesla has bigger problems
Overshadowing the decline in solar is Tesla's production problems with the Model 3. The product has been delayed by at least two quarters, and if delays continue it won't matter what happens in the solar business because Tesla will burn through billions in cash.
Tesla is also working on a semi, solar roof, Model Y, a pickup, and the next generation Roadster. It's no wonder the company has lost sight of the traditional solar market. It's just not important compared to these other products.
Without SolarCity, Tesla's energy storage plans change
The lack of a large solar business could pose a big problem for energy storage. Tesla could have had captive demand for the Powerwall within SolarCity, but instead it'll have to look outside to sell the residential energy storage product. And that will mean entering a commodity battery market, not ideal for making money.
Tesla also doesn't disclose how much money the floundering solar business is burning through today. Given the decline in installations and the high overhead Tesla acquired from SolarCity, there's not much of a chance solar is positive to Tesla's cash flow or bottom line, making it a distraction the company doesn't need today.