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Tesla Feels the Weight of Solar Panels

The Wall Street Journal

Slowing installations, investment guarantees add to car maker’s challenges

Tesla Inc. TSLA -0.36% has another financial worry: Its home solar-panel business is facing slowing installations and could be on the hook for financial promises it made to some investors, just as the U.S. tax law presents new risks to the industry.

SolarCity, which the electric-car maker bought in 2016, is undergoing a sweeping sales revamp that reduced the number of panels the company installed last year. Now, investors and analysts say they are scrutinizing guarantees on investment returns and other promises the company made to firms that helped finance SolarCity’s business before the revamp, and wondering whether Tesla will have to inject cash into those deals.

Sanford C. Bernstein & Co. analysts recently cited SolarCity as one of three main risks for Tesla, alongside production woes of its first mass-market car and slow customer adoption of electric vehicles. “SolarCity could struggle in migrating to a sales and loan model, or defaults could increase, triggering high cash needs,” they told clients.

Tesla, in its recent annual filing, warned that the new tax law could be a disincentive for investors to fund renewable-energy projects. Tesla emphasized the entire solar industry is affected by the changes.

Tesla declined to break out financial results beyond saying the solar business generated positive cash for the company last year and that it has helped boost interest in its Powerwall and Powerpack energy-storage batteries, two other products that, along with SolarCity, make up Tesla Energy Operations Inc.

“Regardless of whatever misinformation critics happen to be pushing this week, we are building the world’s first vertically-integrated sustainable energy company, and solar is an important part of that effort,” Tesla said in a statement. “Far from being a cash burden for Tesla, our solar business was actually cash flow positive in 2017, and we expect that trend to continue in 2018.”

Tesla has little room for any problems at SolarCity. The company’s debt swelled to $10 billion partly due to its SolarCity acquisition. It also had negative cash flow of about $1 billion on average each quarter last year, in part because of investing for the new Model 3 sedan. Tesla missed a crucial production goal for the mass-market car last quarter, adding pressure to crank out enough vehicles to generate cash this year.

The company reports first-quarter financial results on Wednesday.

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