Tesla may shine while solar industry reels from tariffs

PALO ALTO >> Tesla CEO Elon Musk has made his name — and his companies — by taking huge risks, and for his latest bet-the-farm gamble, he might get a helping hand from America’s other risk-taker-in-chief: President Donald Trump.

Surprisingly, that help comes in the form of a new import tax on solar panels and cells.

Under a recent Tesla proposal, Musk agreed he wouldn’t get paid a dime over the next decade unless he can catapult Tesla’s market value more than 10 times higher — and the company expects its solar business to play an important role in that massive growth. Tesla envisions a future in which your home’s roof tiles draw energy

from the sun’s rays, and its Powerwall home batteries fuel up your electric-powered Teslas while you sleep.

But, for many American companies selling solar panels and banking on a green-energy future, a controversial import tax by Trump has cast dark shadows: The administration is slapping hefty tariffs on imported solar panels, raising concerns among some solar companies that the added costs will dampen consumer demand and put thousands of American installers out of work.

The new import tax on solar panels and cells, which took effect last week, starts at 30 percent and declines to 15 percent over four years.

For Tesla, however, it appears any shadows will fall mainly on the competition. The Palo Alto company has an ace in the hole — or, rather, in Buffalo, New York. There, in partnership with Panasonic, Tesla is already producing home-grown solar panels and cells. And although Tesla still relies on solar-equipment imports, analysts believe the Buffalo plant could eliminate or reduce that need, giving Tesla an edge over rivals paying an import tax.

“Whether or not they become a beneficiary of those tariffs will be dependent on how quickly they ramp up that Buffalo facility,” said CFRA analyst Angelo Zino.

Tesla, in Musk’s compensation plan, described its two-part solar business — typical rooftop panel installations, and its “Solar Roof” made of energy-gathering tiles — as key to the

firm’s future.

There’s big money to be made: Globally, the market for solar panels is expected to top $57 billion by 2022, according to Zion Market Research.

“The next phase of Tesla’s development involves a number of exciting plans that will further accelerate the advent of sustainable energy,” the company said. “These include expanding solar energy generation through Solar Roof and other solar products.”

If solar is to play an important role in Tesla reaching its 10-year goals, the firm will need to penetrate markets with plenty of sun and lots of people who have yet to see the light on sunshine power, said Gartner analyst Michael Ramsey. “It really needs to be dominating in Texas and Florida and Georgia,” Ramsey said.

Tesla’s counting on its 1.2 million-square-foot Buffalo factory, which it acquired via its 2016 purchase of San Mateo’s SolarCity, to help it achieve that.

While that factory is ramping up production, Tesla still will have to import panels and pay the tariff, analysts said. But the firm is likely to benefit from a provision in the tariff plan that would let it import — tax-free — the cells that make up panels, because the firm is unlikely this year to hit the import threshold for cells at which the tariff would kick in, Zino said.

Ultimately, Tesla — which told this news organization it was “committed to expanding its domestic manufacturing … regardless of the solar tariff decision” — aims to make all of its solar products in the U.S., said R.W. Baird analyst

Tyler Frank.

“They would like to not import and … their goal is to get third-party suppliers out of the equation as soon as possible,” Frank said. “This tariff over the long term is beneficial for Tesla because they won’t have to pay it and their competitors will.”

Some solar companies fear the tariff will slow sales and damage the industry. San Jose’s SunPower said last month the impending tariff forced it to put a $20 million investment — and hundreds of potential jobs — on hold because the tax would hit its premiumpriced panels hard, Reuters reported. SunPower is seeking an exemption from the tariff.

Other manufacturers and distributors of panels have told Randy Zechman, CEO of San Jose-based commercial and residential solar installer Clean Solar, that they expect little to no price increases for the products, he said.

Some of the tariff’s effects happened before it was even announced, Zechman believes, because panel makers raised prices earlier in the year amid rumors of an impending import tax.

Analysts say they don’t expect the tariff to significantly dampen the roof-top-solar market. They expect it to add only about a dime to the average cost per watt of $2.50.

Manufacturers may use the tariff as an excuse to increase prices slightly, which will push demand down on larger projects until a panel maker breaks ranks and cuts prices, forcing others to follow suit, Zechman predicted.

“All the prices will come back down again,” he said.