Shares of Sunrun Inc. (NASDAQ:RUN) fell as much as 13.7% in trading Tuesday after Tesla (NASDAQ:TSLA) announced some aggressive actions in solar. At the close of trading, shares were still down 11.2% on the day.
Tesla announced that it will reduce the price of solar systems by up to 38% from the national average to $1.75 to $1.99 per watt. It would accomplish the lower costs by pushing all of its sales online, asking customers to provide information like pictures of the roof that would normally be taken by Tesla staff. Systems would also be standardized in 4-kilowatt increments, which would help lower costs.
The cost savings of moving sales online could be significant. Sunrun said its sales and marketing costs were $0.68 per watt last quarter, over 20% of the $3.17 that a system costs to build.
Notice, too, that Tesla's proposed sale price is lower than Sunrun's costs. It's not certain that Tesla would be able to reach customers who typically haven't been willing to buy solar online, but if it can, it would be terrible for Sunrun's value proposition.
I'll take a skeptical view of Tesla's latest gambit in solar. There's been no indication the company has been willing or able to implement a winning strategy in solar, and low costs haven't always been a big winner for the industry. Time will tell whether or not Tesla is going to impact Sunrun's margin, but for now, investors seem worried.