When COVID-19 began to wreak havoc on the solar industry, resulting in the loss of tens of thousands of jobs, it seemed obvious that most residential solar companies would be impacted in a similar way. If the tide is going out, it makes sense that everyone would sink as a result.
But SunPower (SPWR -3.72%) has been investing in ways to digitize its business for years. Those investments may have been out of necessity to try to lower costs in the past, but now it's where the industry is forced to operate. SunPower's Design Studio makes it easier for customers to begin creating a solar installation design than any other U.S. installer. And that's served the company well with COVID-19 hanging over the industry, showing there may be a profitable path to the future.
Residential solar's new world
Over the last two months, installers like Vivint Solar (VSLR) and Sunrun (RUN -3.00%) have scrambled to increase online sales of solar products. Their former dominant model of selling door-to-door has been completely upended, and they're now pushing customers online.
SunPower isn't scrambling the same way, because it has been building its online sales tools for years. In under a minute, you can design a solar installation for your house with SunPower Design Studio, which you still can't do from Vivint Solar and Sunrun.
From the design studio, customers are referred to local installers who can close a sale with almost no customer contact. What we're seeing is that SunPower was building the tools it needed of COVID-19 well before the pandemic hit.
Financially, the proof residential solar is going well is in the results. Recently reported residential segment revenue was up 20.3% to $200.4 million, and gross margin increased from 10.2% to 14.9%.
SunPower's changing business
What's important about the residential solar progress I highlighted above is that it's going to be the majority of the company's business in the future. Most of the company's manufacturing is being spun off as Maxeon Solar Technologies, and that business is struggling mightily.
Its first-quarter revenue of $248 million resulted in EBITDA of just $3 million as gross margin was just 5.2%. Pricing has been weak for solar panels and the company has never had the scale needed to lower manufacturing costs to match competitors.
As Maxeon Solar Technologies ventures out on its own, the company plans to upgrade and expand manufacturing in order to improve margins. By the end of 2021, IBC production will be primarily Maxeon 5 technology, while P-Series production will more than double to around 5 gigawatts. Those were expansions SunPower couldn't afford to do itself, so the hope is that a more focused company can complete them.
A new world for solar energy
Demand for solar energy will come back, so investors shouldn't worry about the industry's long-term trajectory. But we will see over the next few quarters which companies can make a transition to a more digital and virtual sales environment. SunPower is clearly leading in that space and its residential solar growth and margin improvements show that it may be the residential solar industry leader within a few years.