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The Sun Is Setting On Tesla's Solar Business

Dec. 10, 2020 8:02 PM ETTesla, Inc. (TSLA)353 Comments
John Engle profile picture
John Engle


  • In Q3, Tesla saw its solar installations rise 111% quarter over quarter and 33% year over year; Solar Roof installations tripled from Q2.
  • Despite the ostensibly robust growth, total solar deployments were still far lower than had been the norm until 2016.
  • Solar energy plays a key role in Tesla's growth narrative, differentiating it from other automakers as an "energy company that makes cars" and justifying its wildly divergent valuation multiple.
  • The solar energy industry, constrained by effective commodity pricing, has left Tesla with no apparent competitive advantage; the Solar Roof, unveiled in 2016, has gained little traction to date.
  • Tesla Solar’s ongoing struggles may damage investors’ perception of Tesla as an energy innovator, which may in turn weigh on the stock.

When Tesla (NASDAQ:TSLA) reported Q3 earnings in October, the company took great pains to highlight the growth in its solar energy business. Solar deployments rose a whopping 111% from the previous quarter to 57 megawatts. Things looked good on a year-over-year comparison as well, with deployments up 33% from Q3 2019.

Viewed on a wider timescale, however, Q3’s solar deployment growth is considerably less impressive. Indeed, it represents yet another quarter of stagnancy for a business segment that has been stuck in a multi-year downtrend.

Investors would be wise to pay attention to the red flags waving above Tesla’s solar segment. As Tesla’s solar energy narrative diverges ever further from its solar energy reality, the risks to the company’s vaulting valuation are set to intensify.

Shadows Gather Around Solar Segment

Tesla’s solar business has been in decline for years. A review of historical solar deployment levels puts the latest sequential uptick into stark perspective. Quarterly deployments reached their high water mark in Q4 2015 when Tesla installed 253 megawatts. But solar install numbers fell from there, reaching its nadir in Q2 2019 when it managed to deploy just 29 megawatts. Thus, while the 57 megawatts deployed in Q3 2020 may be twice what Tesla managed at its lowest point, it is less than 25% of what Tesla deployed during its best quarter.

Source: Tesla, TESLAcharts

Unsurprisingly, Tesla has attempted to shift focus away from total solar deployments and toward its Solar Roof, which has at last begun to see an uptick in installations after years of delays. First unveiled in October 2016 ahead of Tesla’s ill-fated acquisition of the collapsing SolarCity, the Solar Roof was meant to be a key differentiator in an increasingly commodity-priced solar industry.

Source: Tesla

While CEO Elon Musk assured investors at the time that the

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.https://subscriptions.seekingalpha.com/lp_premium_beat_the_market_4/?source=affiliate:42612986Education: MA, Trinity College Dublin (economics + philosophy); Diploma (finance), London School of Economics & Political Science; MBA, University of Oxford.

Analyst’s 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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