Earlier this month, Tesla Inc. (TSLA) announced that it would cut 9% of its workforce to plug its cash drain and boost its chances of turning a profit. According to Reuters, one of the biggest victims of these job cuts is expected to be the electric car manufacturer’s residential solar business.
Reuters, citing three internal company documents and the accounts of seven current and former Tesla solar employees, reported that the division, which was acquired under controversial circumstances two years ago for $2.6 billion, is set to be cut to the bone. Plans include closing about a dozen installation facilities and ending a retail partnership with The Home Depot Inc. (HD), which current and former employees claim generates roughly half of the solar division’s sales. (See also: Tesla Cuts 9% of Staff: 'Difficult Yet Necessary'.)
The business, which was previously known as SolarCity, a sales and installation company founded by two cousins of Tesla CEO Elon Musk, currently has about 60 open installation facilities. According to an internal company email, Tesla has earmarked 14 of these facilities for closure in California, Maryland, New Jersey, Texas, New York, New Hampshire, Connecticut, Arizona and Delaware.
Tesla refused to comment on which sites it plans to shut down and how many employees could be set to lose their jobs. “We continue to expect that Tesla’s solar and battery business will be the same size as automotive over the long term,” the company said in a statement to Reuters.
SolarCity’s Declining Sales
Sweeping plans to dismantle a large chunk of Tesla’s solar business should perhaps not come as much of a surprise. When the electric car manufacturer bought SolarCity in 2016, it was a leading industry player responsible for installing more than 200 megawatts (MW) of solar systems per quarter. Fast-forward to the first quarter of 2018, and the same business registered just 76 MW of installations.
SolarCity’s fall from grace occurred as Tesla moved to start selling solar and batteries for energy storage in its retail stores, rather than selling them door-to-door. The company was aiming to reduce customer acquisition costs by cutting advertising spend and increasingly selling solar products in Tesla stores, according to a SEC filing.
According to GTM Research analysis reported on by Reuters, the cost of winning a customer through stores such Home Depot can be up to $7,000 per system, compared with a national average of $4,000 per installation.
“It’s an expensive account,” a former employee said to Reuters about the partnership, “but it does bring in all the revenue.”
Home Depot spokesman Stephen Holmes confirmed that Tesla’s relationship with the retailer will last until the end of the year. Holmes also said that his company will continue to work with Tesla competitor Sunrun Inc. (RUN) in the future. (See also: 3 Things We Heard at the Tesla Annual Meeting.)