Will the Buffalo Plant make sense now

I was perplexed when 3 years ago SolarCity Corp. (NASDAQ: SCTY) announced that it was buying a marginal producer of solar cells and panels in USA and planned to set up a giant 1 gigawatt manufacturing plant. SolarCity at that time was flying high as it was growing at very high rates using its solar rooftop financing model. The company was being valued at very high multiples making me question the company’s value and model numerous times. Solar manufacturing has been a very hard industry and most companies have failed at this. Major western companies which were once leaders went kaput in a matter of months, as the Chinese scale and costs made a mockery of their business models. SolarCity did not learn from history as it went into vertical integration by building up an expensive factory with a a target of producing 55 cent per watt solar panels with 20-21% efficiency  panels. This target looks like a joke now given that Chinese solar panel costs are already at 35-40 cents/watt and 2016 is not even over now.

SolarCity was going to use the n-type solar cell manufacturing technology of Silveo which is not very different from that used by Panasonic and Sunpower. Note that even these powerhouse companies are marginal players in the global market as they are not cost competitive. Even though their panels have higher efficiency, their costs are way higher than that of the Chinese. They can only play in niche markets like USA and Japan. SolarCity despite being an upstart and with zero experience in manufacturing of any kind of product let alone a highly competitive one, wanted to become a big player. It did not learn from history and is now paying the price. Even its main business model of financing solar rooftop installations is coming into question now, given that the industry is moving away from financing to installation only.

SolarCity is now getting Panasonic as a partner for its Buffalo plant as it probably realizes that it now wants to cut its losses. I don’t know why Panasonic which has found a comfortable small niche in the solar panel storage market wants to build an expensive solar panel plant in USA. It could be just doing a favor by making news as it is building a multi billion dollar plant in USA in JV with Tesla. I don’t think that SolarCity’s plant is going to become a success. It makes no economic or strategic sense to build a solar module plant in the USA now, given that solar panels can easily be procured at 40 cents/watt in built, by solar installers in USA without worrying about any duties on Taiwan and China.

I think Panasonic is soon going to ditch both Tesla/Solarcity as it has only signed a non-binding agreement with the company. It stands to benefit nothing from building an expensive plant in USA with questionable economics and untested technology.