SunPower (SPWR) has been going through a strategic upheaval for most of the last decade. Its high-efficiency solar panels were always its core product, but it has shifted away from being a power plant developer and financier and moved toward a focus on residential and commercial solar, where it sometimes sells for cash and sometimes finances projects.
Now, it's taking the next step to simplify its business by separating into two public companies. The North American residential and commercial energy services company will keep the name SunPower, while the Asian manufacturer of high-efficiency solar panels will go by the name Maxeon Solar Technologies. There are a lot of moving parts here, but this is what investors should know about these two new renewable energy stocks.
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SunPower's new focus
Let's start with the "new" SunPower, which is basically the same consumer-facing business it is today without the manufacturing arm attached. Management says SunPower will be "a pure-play, DG [distributed generation] energy services company leveraging the world's best solar platform."
SunPower's business can be split into two categories: residential and commercial channels where third-party partners do the sales, and installation and direct commercial solar sales. In the channel business, SunPower provides a platform that smaller dealers can use to facilitate their own sales. This includes the Design Studio SunPower introduced earlier this year to bring quote times down to under a minute.
The dealer platform also includes new home builders that offer solar as part of their packages. In total, this is about a $1 billion business for SunPower with 400 MW to 500 MW of annual installations.
The direct commercial solar segment includes larger agreements between SunPower and big real estate owners like Target or Macy's. SunPower has the No. 1 market share in this niche, and a $3 billion pipeline of projects, so the opportunities here are massive.
Driving the SunPower business will be an exclusive supply agreement with Maxeon, which will give the company an efficiency advantage where it makes financial sense. SunPower will also retain the U.S. plants where it manufactures its P-Series solar panels, as well as some research facilities.
Long term, SunPower hopes that the addition of energy storage will make it an energy provider to homeowners and commercial real estate owners, not just a solar system provider. If that plan works out, the slimmed-down new company could be better positioned to grow than competitors like Vivint Solar and Sunrun, the two closes rivals to the new SunPower.
Maxeon breaks free
Solar manufacturing tied to SunPower's installation and dealer business was always a bit awkward because there wasn't a 100% focus on manufacturing expertise and growth. Now, that focus will be there, and Chinese firm TZS is investing $298 million in Maxeon to help fund the expansion of its manufacturing capacity, in return for 29% of the new company.
By the end of 2021, Maxeon expects to have nearly 6 gigawatts (GW) of capacity, including 3 GW of P-Series in China and 1.9 GW of Maxeon 5 cells, which are the most-efficient commercial solar cells on the market, and which are the core components of the A-Series solar panel.
Adding scale to its manufacturing business will be a necessity for Maxeon as it deals with competitors who continually put cost pressure on the industry. But if its plans for Maxeon 5 and next-gen Maxeon 6 production come to fruition, the company could produce a much more efficient product that's cost-competitive with commodity-grade technology.
The end of an era in solar energy
Splitting up SunPower isn't just a short-term fix to the company's specific problems. It's an acknowledgment that vertical integration no longer makes sense in solar energy. Companies are specializing in specific segments and product lines; dividing SunPower into two companies will allow both to do that.
I think this will be the first time in a decade that SunPower's manufacturing business (Maxeon) will be positioned to compete with low-cost producers. If it can keep costs down, it may eventually become one of the most valuable manufacturers in the world. On the installation side, SunPower will face off against Sunrun and Vivint Solar with superior technology and a much larger dealer network. It could scale more quickly than rivals, and with a more efficient solar panel and new energy storage solution, it could be the dominant player in both residential and commercial solar before long.
