Cleantech darling Tesla has fallen to third place in the Wood Mackenzie Power & Renewables ranking of US residential solar installers, with Sunrun securing its spot atop the pile and Vivint Solar reclaiming the number two spot for the first time in nearly two years.
Wood Mackenzie published its latest US PV Leaderboard this week, and for the first time since the company started tracking US residential solar installers back in the first quarter of 2018, Tesla has fallen to third place.
Sunrun, which overtook Tesla as the United States’ leading residential solar installer in the second quarter of 2018*, remains atop the pile, installing 11% of all home solar capacity installed through the first quarter of 2019 — its highest share ever. (*Though, note that Sunrun announced in its 4th quarter and full year 2017 financial earnings that it had surpassed Tesla, earlier than Wood Mackenzie figured things out.)
Vivint Solar similarly increased its market share, taking a 7.6% share of the US residential solar pie in the first quarter, while Tesla (a header which includes Tesla’s long-term solar business and that of SolarCity, which the company acquired in November of 2016) saw its share of the US market fall to 6.3%. Together, the three companies accounted for a quarter of the 603 megawatts (MW) installed in the first quarter, a long cry away from the days when Tesla (then SolarCity) could account for more than a third of the entire US residential market on its own.
Leading US Residential Solar Installers
“Tesla has essentially thrown in the towel on pursuing growth in the residential solar space because it has concluded that acquiring customers is simply too expensive,” wrote Wood Mackenzie Senior Solar Analyst Austin Perea in a report on Tesla’s store closures published earlier this year. “Rather, Tesla will rely on its brand power and low-cost referral methods to keep the solar business afloat until it stabilizes.”
“For Tesla, the installation bleeding lasted into 2018 when its national residential installation volume fell another 41% annually despite other national installers experiencing growth,” Perea continued. “Vivint and Sunrun’s direct businesses grew 7% and 37%, respectively. But even as other installers grew in 2018, Tesla’s standing continued to have a substantial impact on the national residential solar market.”
Looking out at 2019, Wood Mackenzie predicts growth for the US residential solar market of only 3%, with Tesla serving as the major factor depressing numbers. “The growth outlook for 2019 — like 2017 and 2018 — continues to be hampered by Tesla’s decisions to cut back on its customer acquisitions channels,” explained Austin Perea, speaking this week. “They have effectively cut out every single form of active customer acquisition.
“We actually expect them to continue to see year-over-year declines relative to 2018 through 2019.”
Tesla has made several shifts in sales strategy over the past year which have relegated its residential solar program to the back burner, including ending its sales partnership with American home improvement supplies retailer Home Depot and moving to close down many of its own branded stores which sold solar alongside the company’s batteries and vehicles.
In a way, Tesla is simply carrying on its efforts to do business differently to the rest of the market. As the company expressed in its first-quarter letter to shareholders (PDF), “For residential solar and energy storage, traditional industry-wide sales techniques require customized systems, installations and purchasing processes. This results in a cumbersome buying experience and limits market potential.
“As we have done for the vehicle business, the key to accelerating mass adoption is to standardize the product offering, simplify the customer buying experience, and focus on the markets with the strongest economics. This results in cost efficiencies.”
Tesla is obviously looking to avoid customer acquisition costs — costs which make up the largest portion of solar installation costs, accounting for 21% of total costs in 2018 — and the company has begun to see its customer acquisition costs dropping, though that is only because they are no longer putting any money towards it in the first place. Conversely, companies like Sunrun and Vivint Solar are suffering customer acquisition costs of $0.90 per watt and $0.94 per watt, respectively.
“With current saturation levels, customer acquisition costs are not going to come down,” explained Perea. “Tesla understands where the cost stack is right now and they’re able to rely on other business units. … They’re diversified in a way that other models aren’t.”
In the end, only history will be able to decide whether Tesla or its competitors like Sunrun and Vivint Solar made the right business decisions for themselves, and for the residential solar market in the United States. As it stands, however, Tesla will only continue to see its market share decline unless it does something dramatic to reverse this unravelling trend.