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It was a no-brainer that buying SolarCity would be a huge mistake for Tesla. The business model for SolarCity and other solar rooftop installers in the U.S. was broken at the time Tesla bought the company. The only reason that the company was bought out was that the owner Elon Musk owned shares in the failing company. Despite massive conflict of interest, the deal went through and as expected it is hurting Tesla’s shareholders badly.
The business model of selling rooftop solar energy in the U.S. in the last few years was through financing, as the initial capital cost of the system was quite high and getting subsidies through tax breaks was a complicated financial process that only large corporates could manage. SolarCity played very well during that time expanding rapidly though not very profitably. Other likes SunEdison, Sungevity and others also took advantage of the boom.
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Also, read my take on Why Vertically Integrating Into Solar Energy Does Not Make Sense For Tesla.
But in the last few years, the business model has changed with the solar industry maturing. Banks are much more willing to give loans to individuals for installing solar systems, as they get more confident about the technology and its economic viability. Customers have also become smarter and are not willing to give solar financing companies like Tesla the extra money they would earn. Solar has become mainstream and people do not need companies such as Tesla to get the financing and education. Local mom and pop installers can easily get the job of installing solar panels done.
SolarCity now finds itself without a differentiator or any value to offer customers. Its stupid decision of building a large solar panel manufacturing factory is also becoming a burden. The company has abandoned that factory and got Tesla’s partner Panasonic to save face. However, that is another money sinkhole. The whole solar foray by Tesla is a huge mistake which will keep growing bigger and bigger. Its recent venture into solar roof tiles has been shown to a failed business model but is still being persisted by the best marketer in the world.
Tesla reported first quarter 2017 solar installations of 150MW, down from 201MW in the previous quarter, a 25% decrease, due to selection criteria biased towards customer owned PV systems rather than leased. This shows that SolarCity has been a billion dollar luxury expense that Tesla shareholders are paying to Musk.