SolarCity to focus on profitability, not growth in 2017 after Tesla buyout
- Tesla released its first financial report since its acquisition of SolarCity at the end of last year, showing that, despite high electric vehicle sales, the purchase of the nation's leading residential solar company has put a drag on overall revenues.
- Tesla reported a $121 million net loss in the fourth quarter, with total revenues of $2.28 billion. In a letter to its shareholders, Tesla noted the SolarCity deal added $85 million to its operating expenses, but said solar lease sales climbed 28% over the quarter.
- The company deployed 98 MWh of energy storage and 201 MW of solar generation in the final quarter, with the solar business adding $77 million in revenue in the last six weeks of the year.
Tesla's latest quarterly report gives us a window into how acquiring SolarCity impacted its earnings.
Before the deal was finalized, some financial analysts characterized the deal as a bailout for the nation's leading residential solar installer as the company struggled with negative regulatory decisions and cash flows dwindled.
Buying SolarCity saddled Tesla with an additional $2.6 billion in debt and left investors uneasy over how the merger would affect the balance sheet as the company sought funding for its Gigafactory and production of the Model 3, a less-expensive electric vehicle.
But despite another quarter in losses, Tesla's report struck an optimistic note, touting $7 billion in total 2016 revenue and a $300 million uptick in Q4 cash flow — more than half of that stemming from the SolarCity deal.
These funds are necessary as Tesla prepares to roll out its solar roof offering — a product announced just before the deal was finalized — and ramp up its battery storage production. The company said it was on track to start selling its solar roof later this year, but offered no hard deadline.
Instead of targeting growth, SolarCity will focus on profitability as it cuts customer acquisition costs by slashing advertising spending, selling SolarCity products in Tesla stores and shifting away from the panel leasing model, which accounted for more than half of the market share this year.
"During this transition, we plan to prioritize cash preservation over growth of MW deployed," the update noted. "As this transition progresses, we see a return to growth of MW deployed later this year to help us generate the cash and realize the cost synergies we projected prior to the acquisition."
In Tesla's other businesses, energy storage and generation gross margin was "lower than planned," hitting 2.7% as the company scaled production to meet "future growth."
Over the long term, "gross margin is expected to be similar to [the automotive division], but with a significantly higher revenue growth rate," according to its update. By contrast, the automotive division reported a gross margin of 22%.
During Q4, Tesla used $522 million for manufacturing capacity at its Gigafactory, Model 3 factories and "expanded customer support infrastructure." And it expects to spend between $2-2.5 billion for capital expenditures in 2017.
It remains to be seen how the SolarCity deal will impact Tesla in the long run. Tesla CEO Elon Musk framed the deal as part of a broader vision for a global clean energy revolution as the company positions to offer services to utilities and residential customers as an "integrated clean energy" company.
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