Tesla Inc (NASDAQ:TSLA) received a bailout from the Trump Administration in the form of a tariff on imported solar equipment. This came just as TSLA launched its solar panel Gigafactory in Buffalo, New York.
The case resulting in the tariff had been brought by Suniva — now owned by a Chinese company — and Solarworld, which declared insolvency last year. The thin-film solar panels made by First Solar, Inc. (NASDAQ:FSLR) are exempt from the tariff.
The other major U.S. solar producer, SunPower Corporation (NASDAQ:SPWR), part-owned by the French oil firm Total SA (ADR) (NYSE:TOT), has moved toward the utility scale solar market, and it is buying large panels from China that are subject to the tariff.
TSLA stock was due to open Jan. 23 at $359 each, up 2.2%, and the company’s market cap of $59 billion is now just $2 billion short of General Motors Company (NYSE:GM).
TSLA Stock: Just in Time
The tariff comes at an opportune time for Tesla, because 2018 had started with a string of bad news for the company.
Most of the news involves its inability to scale production of its Model 3 sedan, as CEO Elon Musk had promised to do. His move to take no salary unless the company hits performance milestones is irrelevant, since his net worth is already tied up in TSLA stock.
A report from Navigant Research also shows that Tesla is last in the race to build autonomous cars among 19 companies. InvestorPlace contributor Larry Ramer writes that the company needs a “bigger partner” to justify its valuation, but it is already among the biggest U.S. car companies by market cap. Only Volkswagen AG (ADR) (OTCMKTS:VLKAY), Daimler AG (ADR) (OTCMKTS:DDAIY), and Toyota Motor Corp. (ADR) (NYSE:TM) are bigger.
Of course, TSLA might be a tempting morsel for a tech company such as Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), with its $805 billion market cap and Waymo subsidiary working full-time on the problem of autonomy. But Alphabet ownership would not, by itself, scale Tesla’s car manufacturing.
The Biggest Losers
The biggest loser is the U.S. residential solar market, which is expected to shed 23,000 jobs. Because Tesla’s solar roof is designed to be installed by ordinary roofing companies, the expertise of its competitors with solar panels is useless to it.
U.S. utilities could also be big losers here. Utility-scale projects can scale permitting and construction, delivering energy for much less than residential projects, and they can be sold to utility companies, increasing their capex, something residential power doesn’t do.
Still, TSLA is focused on the residential market, so nearly all the available solar cells utilities might want are subject to the tariff. That may make Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) and its Berkshire Hathaway Energy a loser.
The government’s fact sheet on the decision shows the tariffs hitting 30% in the first year, and dropping 5%-per-year to 15% in the fourth year.
The Gigafactory began producing its solar roof tiles in December, a year after Panasonic Corp. (ADR) (OTCMKTS:PCRFY) agreed to spend the $260 million needed to finish the factory and to make other investments subsequently. Panasonic, with a market cap of $37 billion, may be the biggest winner in the decision.
Bottom Line on TSLA
The full impact of the tariff decision will take time to shake out, but it’s hard to see this as a negative for Tesla. By the time it reports March earnings, in early May, it should be reporting profits in both solar panels and batteries, giving it more time to scale its car production operations with less cash burn.
Whether that makes TSLA stock a buy at its current inflated price is another question.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.