Tesla sank to third position among U.S. residential solar providers for installations in the first quarter of 2019, continuing the one-time marketplace leader’s remarkable decline.
The most recent ranking from Wood Mackenzie Power & Renewables shows Vivint Solar knocking Tesla out of second place.
That’s not to mention that Vivint gained market share at Tesla’s expense. Vivint’s percentage of the industry actually shrank, from a high of 11.6 percent in 2014 to 7.3 percent up to now in 2019.
Accounting for 32.6 percent of the market in 2014 since SolarCity, Tesla now lays claim to only 6.3 percent of the marketplace this season.
In general, WoodMac forecasts nearly flat 3 percent growth for the residential solar market in 2019. Tesla continues to be a depressing element. The U.S. installed 603 megawatts of residential PV capacity during the first quarter, up 6 percent year on year.
“The growth prognosis for 2019 — like 2017 and 2018 — continues to be hampered by Tesla’s decisions to cut back on its own client acquisitions channels,” said Austin Perea, a senior solar analyst in Woodman.
Several changes in sales plan have left analysts skeptical about Tesla’s solar business, which it acquired when it purchased SolarCity for $2.6 billion in 2016. The company has wound down a partnership to market solar in Home Depot stores and is moving to close many of its own stores, where it offered solar alongside batteries and vehicles.
That leaves web-based sales as Tesla’s strongest stream of purchases. In a recent report, Perea noted the company might not observe a balancing of organic sales via net and referral earnings until the second half of the year.
“They have effectively cut every single kind of busy customer acquisition,” said Perea. “We really expect them to continue to view year-over-year declines relative to 2018 through 2019.”
The drop in residential installations comes amid broader chaos in Tesla’s solar business. Reuters recently reported that solar cells produced by Panasonic in Tesla’s Buffalo, New York factory are actually being sent to the Philippines, rather than being used in Tesla’s trademark solar roof. In April, Greentech Media published a report digging into concerns about Tesla’s commitments in that plant and its capacity to scale the solar roof.
Tesla declined to comment on the most recent residential installation numbers, and instead pointed to past statements.
“For residential solar and energy storage systems, traditional industry-wide sales techniques demand customized systems, installations and purchasing procedures. This results in a cumbersome buying experience and restricts market potential,” the company said in its own Q1 letter to shareholders. “As we have done for the vehicle business, the key to accelerating mass adoption is to standardize the product offering, reevaluate the consumer buying experience, and concentrate on the markets with the strongest economics.
It’s true that at the exact same period Tesla’s market share has faltered, its customer acquisition costs have dropped. In the second half of 2018, the company was spending $0.40 per watt to obtain customers. From the end of 2019, WoodMac analysts stated Tesla might be spending”near a quarter” per watt.
According to the energy research firm, customer acquisition prices remain the most expensive portion of residential solar systems, accounting for 21 percent of overall costs in 2018. Vivint and Sunrun have client acquisition costs at $0.94 per watt and $0.90 a watt, respectively.
“With current saturation levels, customer acquisition costs are not going to come down,” said Perea. “Tesla understands where the cost stack is right now and they’re in a position to rely on other business units… They’re diversified in a way that other models aren’t.”
The current leaders in residential solar, Vivint and Sunrun, have to rely on ballooning installation numbers to continue growing. Owing to its luxury auto brand and its storage business, Tesla doesn’t.
The impending stepdown of the Investment Tax Credit, which drops to zero for customer-owned systems in 2022, means that many residential programs will go up in cost, because price declines will not match the loss of the incentive.
“I’m not saying that Tesla is doing the ideal thing , however I think they understand that existing customer acquisition costs aren’t going anywhere,” said Perea. “It’s becoming a rather well-respected merchandise at a cheaper price point than a few of its principal competitors. That is because they’ve been reducing their customer acquisitions costs actively.”
According to analysts, the company is unlikely to beat competitions using the metric of installation volume that the solar industry has generally used to quantify achievement.
In case Tesla can bounce back from its current challenges and maintain its below-average costs to sign up new customers, it’s going to have outwitted industry expectations and demonstrated acquisition costs don’t have to become exorbitant — as long as you have a shiny brand name.
