In a move that's surprised pretty much nobody, Tesla Inc.'s (TSLA) recently announced decision to cut 9% of its workforce is having a big impact on its solar business.
Reuters reported late Thursday that Tesla plans on closing a dozen solar facilities in nine states as part of the plan.
Make no mistake, Tesla isn't cutting back its energy business here. After the closures, Tesla will still have around 60 solar facilities open.
But what Tesla does appear to be doing is properly integrating the SolarCity business it acquired back at the end of 2016.
Fact is, the SolarCity brand isn't dead yet. But it should be.
Tesla Solar customers who sign up for panels today still log in to a SolarCity domain to check on the status of their projects. And new installs still come with SolarCity-branded equipment. That's all changing, though.
In the past several months, Tesla Energy branding has shown up on mysolarcity.com, and SolarCity logos are disappearing from inverters and gateways that used to sport them.
But the differences aren't just skin deep.
My own experience with Tesla Energy has been that there's been a huge disconnect in dealing with Tesla's solar arm versus its car support. That's not hugely surprising either - the company was in the process of integrating a $2.6 billion acquisition into its operations.
There's going to be some discontinuity in the time after the deal, especially considering the fact that CEO Elon Musk has been a little busy ramping up Model 3 production.
Tesla's long-term aspirations for Tesla Energy aren't changing. The company told Reuters this week that it still expects the solar and battery business to become the same size as automotive, and that job cuts at Tesla Energy were in line with the 9% reduction company-wide.
Restructuring is rarely pleasant, but it clearly needed to be done in the case of Tesla Energy. Since the deal, Tesla has dramatically cut solar deployments, bringing down customer acquisition costs and boosting margins at a time when Powerwall systems (a complement to Tesla's solar installations) are supply constrained. That's not a surprising way to do business.
And it's why Tesla solar was cash-flow positive in Q1 of this year.
The thing that Tesla-watchers might find most surprising is the fact that there aren't any bombshells in the way Tesla is handling its solar business. The company has been pointing to these strategy changes since before the deal was finalized.
Ironically, many of the same voices who were complaining that SolarCity was an unattractive business a year and a half ago when the deal closed are also lamenting Tesla changing its strategy now.
Tesla's solar arm has totally different economics from SolarCity, now that cash and loan system sales make up the majority of installations, versus just 9% back in Q1 2016. SolarCity was essentially a finance company that installed solar panels. That's not the case under Tesla Energy.
Scaling down solar deployments until Tesla can start to meaningfully address its retail Powerwall backlog is a logical strategy for Tesla Energy - and it's likely an important contributor to Tesla's ability to turn the corner to profitability in the second half of 2018.