Walmart is suing Tesla alleging that some of the company’s solar panels sparked roof fires at several of its locations. According to Walmart, Tesla’s solar panels were responsible for at least seven fires that destroyed significant amounts of store merchandise and necessitated substantial repairs to buildings, costing hundreds of thousands of dollars. Walmart wants Tesla to remove the panels from over 240 Walmart store roofs and cover the costs. Walmart’s push for solar power generation on its store roofs dates back more than a decade, and was announced with much fanfare. Similarly, Amazon alleges a June 2018 blaze on one of its warehouse roofs involved a solar panel that Tesla had installed. Unlike Walmart, Amazon only has a very small number of solar systems installed by Tesla. Both companies want their solar systems to operate reliably, efficiently, and safely.
The Walmart Filing
According to Walmart’s filing, some of the problems with the panels stemmed from a rushed approach to the system’s installation and inspection of panels by Tesla personnel, who lacked basic solar training and knowledge. According to Walmart, its own inspectors observed negligent and dangerous wire connection practices that were readily apparent at many of the sites inspected and are a risk factor in contributing to fires. Walmart indicated it began using solar panels made by Solar City in 2010, before Tesla acquired it in 2016.
Tesla and Solar City
Tesla bought the Buffalo factory’s main tenant, SolarCity, for almost $5 billion in 2016, accepting $750 million from New York as part of its Buffalo Billion program to revitalize upstate New York—$350 million to build a factory and another $400 million on equipment specified by SolarCity. SolarCity would get a 10-year lease on the facility for $1 a year. Tesla promised to employ at least 1,460 people in “high-tech” jobs at the factory, hire another 2,000 to support the sale and installation of solar panels in New York, and help attract an additional 1,440 “support jobs” in the state. Once it achieved full production, the company pledged, it would spend around $5 billion in New York over the following decade. Tesla’s plan was to turn the plant in Buffalo into “the largest manufacturing facility of its kind in the Western Hemisphere.” Tesla’s SolarCity would build 10,000 solar panels per day and install them on homes and businesses across the country, creating 5,000 jobs in a depressed area.
The initial idea for SolarCity was not to be a manufacturer but rather to control the entire consumer experience, from sale to installation, thereby driving down costs. For a time, SolarCity was a hot stock, growing almost tenfold from its public offering in 2012 to its peak in early 2014. SolarCity’s business model was to front the costs of installing solar panels and allow homeowners to pay over time, which required raising money from outside investors, often big banks, who were then entitled to the first portion of the payments homeowners made. As SolarCity struggled to raise money from institutional investors, it began offering individuals a chance to buy Solar Bonds.
The company initially imported most of its solar panels from China. But, by 2014, it looked like demand would soon outpace supply. As a result, the board decided that SolarCity needed to make its own panels, which was a major shift in its business model because installing and selling solar has little to do with manufacturing it.
In June 2014, SolarCity bought Silevo, a solar-panel manufacturer that had struck a deal with New York to build a factory in Buffalo. The deal was expected to enable SolarCity to install tens of gigawatts of panels every year—far beyond the company’s peak annual rate of about one gigawatt. On its website, SolarCity predicted it would “achieve a breakthrough” in solar-power pricing thanks to “massive economies of scale.”
In May 2016, the Tesla board agreed to acquire the company for almost $5 billion, including the assumption of nearly $3 billion in SolarCity debt. At that time, the cost per watt of solar modules being produced in the Buffalo plant was projected to be 20 cents above the cost of the rest of the industry.
On October 28, 2016, just before shareholders were set to vote on the acquisition of SolarCity, Elon Musk introduced a new product called the Solar Roof—shingles he claimed would last longer and cost less than a regular roof, even before factoring in electricity. In early 2018, the company announced that production of the Solar Roof had begun in Buffalo. Last May, an investigation by Reuters, however, found that most of the solar cells produced in Buffalo were sold overseas, and not used in the Solar Roof, because demand was low.
In the meantime, N.Y. state officials had issued a series of 10 amendments that watered down the requirements SolarCity must meet in exchange for the $1 lease on the Buffalo factory. The 1,460 “high-tech” jobs at the factory and the 2,000 jobs to support solar sales and installation in New York were defined simply as jobs. The agreement to employ 900 people at the factory within two years was reduced to 500. And the timing for the additional jobs was extended to 10 years after the factory was completed—at which point the lease would also expire.
More trouble is brewing for Tesla, however, than just the filings for the fires. By next April, Tesla is required to start paying an annual fine of $41.2 million if it does not employ 1,460 people in Buffalo. Tesla says it currently has 636 employees statewide in New York, including 329 at the plant, and that it has invested almost $400 million in New York.
After acquiring SolarCity, Tesla sold and leased solar panels in Tesla showrooms, with the leases extending 10 to 20 years. Afterward, Tesla promoted sales as opposed to leases. Tesla recently announced that it would rent solar panels to homeowners in Arizona, California, Connecticut, Massachusetts, New Jersey, and New Mexico.
SolarCity was the top U.S. residential solar installer at one time, but, in the first quarter of 2019, Tesla ranked number 3 with a 6.3 percent share.
Conclusion
The SolarCity gamble may not pan out for Tesla, as the filings by Walmart and Amazon can attest to, and may not meet the demands of New York regarding jobs. How that will affect the company overall is yet to be seen.
