For its three decades of existence, SunPower Corporation (NASDAQ:SPWR) has been a premium solar company. In fact, it is the premium company for people who want to put solar on their roofs in the U.S. today. No other company makes a more efficient or a more durable product. 

That's why last week's announcement that SunPower would be adding a product line -- the P-Series -- that is less efficient was shocking in many ways. The company is in some ways moving backward to a product that competes with Chinese solar panels on a cost basis, rather than commanding a premium as the company has always done.

The explanation for why SunPower is making this move should either comfort investors or make them question the competitive advantage that efficiency really has in the market.

SunPower's move downmarket
The first thing to understand is what SunPower P-Series really is. The product is 17%-19% efficient, down from as much as 22.8% efficient for production X-Series panels. For that reduction in efficiency, the company says it will be able to make panels for the same price, or lower, than Chinese solar manufacturers, who are producing panels for less than $0.50 per watt.

Image: SunPower Analyst Day presentation.

The process the company will use to make these panels at least makes lower costs possible. SunPower will buy solar wafers on the competitive market, where costs are extremely low, and then bond them together, eliminating the silver needed to connect cells. The result is a panel that's more efficient because there's less wasted space, and that's more durable than traditional panels.

Management also contends that it only needs to invest about $0.10 per watt of capacity in capital costs, much less than its traditional production method, making for low-risk growth.

Image: SunPower.

Why low efficiency; why now?
The reason SunPower is moving down market is that it's realized it can't compete in markets where the cost of capital is high. In places like India, Latin America, and Africa, the cost of capital is higher, meaning the discount rate is higher, meaning the extra energy SunPower's traditional panels generate in year 10 or 20 isn't worth much. Installers need low costs up front.

The idea is that lower cost product will allow SunPower to expand its footprint while maintaining a premium position in the U.S. and other low-cost-of-capital countries. You can see from the chart on the left that the company plans to make this a big part of production, so it's a big bet by management that downmarket is where SunPower needs to be.

Isn't this what SolarCity is doing?
Interestingly, this isn't too dissimilar from what SolarCity (NASDAQ:SCTY) is doing. SolarCity is building a manufacturing plant based on Silevo's technology that it says will have similar costs to Chinese solar panel manufacturers, but it has efficiency that can reach as high as 21%.

The difference will come down to who executes on this new technology. SunPower has been manufacturing solar cells and modules for decades, while SolarCity just started making panels. My money would be on SunPower executing.

The wild card is that SolarCity's cost per watt for capital expenses was actually $0 because it got its plant in Buffalo, New York paid for by the state. So that gives the company a head start versus spending the $0.75 per watt that it would have cost to build the plant on its own.

Is this good or bad for SunPower?
I have to admit that even as a SunPower bull I am surprised by the company's move to a lower-cost, lower-efficiency panel. It's understandable to want to expand your potential market, but losing that premium moniker is a big deal for a company like SunPower. 

While I question the strategy now, I also have to admit that SunPower's management has proven its ability to read the market correctly and remain profitable while competitors collapse and go out of business all around it. Maybe SunPower will prove to be better at making low-cost solar panels than even its Chinese competitors. If that's the case, this could be a truly revolutionary move for the company in a bid to play in all value streams in the solar industry. Time will tell if it can execute on that plan.

Travis Hoium owns shares of SunPower. The Motley Fool owns shares of and recommends SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.