Government Pressure Mounts On Tesla's Struggling Solar Unit

Feb. 14, 2019 6:39 PM ETTesla, Inc. (TSLA)417 Comments
John Engle profile picture
John Engle


  • Tesla's solar business has been deteriorating for years. The company forecasts further declines in installations in Q1 2019.
  • Tesla builds its solar products at Gigafactory 2 in Buffalo, NY. The state provided $750 million in funding in exchange for promises of jobs and billions of dollars in future investment.
  • If Tesla fails to meet its first employment milestone obligation in April 2020, it will face steep financial clawbacks.
  • State government officials have turned a blind eye to the situation for the most part. Investigations by a number of legislators have brought the issue back into the spotlight.
  • Tesla could find itself with significant financial obligations from its Buffalo mess. It also risks losing the goodwill of state governments that have lavished subsidies on it in the past.

Tesla (NASDAQ:TSLA) claims the somewhat grandiose mission of “accelerating the world’s transition to sustainable energy.” That is an awfully lofty goal for a niche electric car company, yet it has won over countless supporters in the financial world, media, and general public.

To support the idea that it is a sustainable energy company, and not just a carmaker, Tesla has branched into other ventures, most notably residential solar. Despite its lofty ambitions, however, Tesla’s solar business has been contracting markedly:

  • Installations fell to a five-year low in Q4 2018 and are expected to fall further in Q1 2019.
  • SolarCity installation centers are closing all over the country. Investment in solar leasing has fallen dramatically.
  • The Solar Roof, a product meant to enter mass production in 2017, has not left the design stage.
  • Gigafactory 2 in the RiverBend area of Buffalo, NY, where Tesla’s solar systems are built, has failed to create the jobs it promised in exchange for $750 million in state subsidies.

The list goes on.

Taken together, these developments lead to the inescapable conclusion that Tesla’s solar business is falling apart, as we discussed in a research note published Feb. 7. Yet, Tesla has largely managed to avoid open criticism, especially where its Buffalo factory is concerned.

Unfortunately, for the upstart electric car company, the period of salutary neglect appears to be at an end as state politicians become increasingly vocal in their criticism, sniffing around in ways the government has avoided to date.

As New York wakes up to the problems in Buffalo, Tesla looks set to face stiff financial penalties. Worse still, as its “energy company” mirage dissipates, markets will be forced to come to terms with what Tesla really is: A radically overvalued carmaker in need of a steep downward price correction.

Salutary Neglect (and

This article was written by

John Engle profile picture
Investment professional specializing in deep value opportunities, growth plays, special situations (long + short) across a range of asset classes and industries.Current Role(s): President, Almington Capital Merchant Bankers; Chief Investment Officer, The Cannabis Capital Group.Asset Classes: publicly traded securities (stocks + fixed income), private equity, real estate, venture capital, cannabis, fintech. MA, Trinity College Dublin (economics + philosophy); Diploma (finance), London School of Economics & Political Science; MBA, University of Oxford.

Disclosure: I am/we are short TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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