The residential solar market has been decimated. There are low prices and low demand. There are literally 100s of solar companies in bankruptcy right now.

As the old Warren Buffett quote goes, the tide is out and we have found out who is swimming naked.

The biggest of these bankruptcies is SunPower (SPWRQ – OTC). This is the 3rd biggest solar installer in the United States. They announced bankruptcy early August.

SunPower is selling off their assets and winding down. Their bankruptcy came with the pre-packaged sale of their crown jewels.

The buyer of these assets is Complete Solaria (CSLR – NASDAQ), a small niche solar player in California.

Just a few months ago Complete Solaria was in default themselves! But in a remarkable twist, they raised capital, paid back their debtors and now are powering ahead by buying SunPower assets that will dramatically expand the company (the sale was approved by the court last week).

The key to that transformation is their brand new rockstar CEO, industry veteran and former Cypress Semiconductor CEO TJ Rodgers.

Rodgers has put his own money behind this. He is literally the reason Complete Solaria isn’t in bankruptcy. In the spring, Rodgers put up $18M to pay off private equity vultures, get them out of default and fund the working capital needed to get the business back in motion.

Next, he bid on SunPower.

I don’t think it is any coincidence that Rodgers decided to take the helm and resurrect Complete Solar just months before SunPower declared bankruptcy. As you will see the history between Rodgers and SunPower runs deep.

I suspect this was all in the plan. As a result, Complete Solar has become a turnaround story in a turnaround industry.

The company just bought the 3rd biggest solar installer in the US for what looks like pennies on the dollar.

It has a CEO with a 20+ history in solar and an even longer history of success.

The residential solar business is bottoming. It has a long recovery to get back to the boom days of 2021-22. Complete Solaria is poised to take share and recover with it.

And while the share price is up a lot, there is plenty of upside left if Complete Solar can resurrect SunPower.

HOW WE GOT HERE

The residential solar market has been a disaster.

The simple explanation to what happened is that high rates shrunk demand. And that’s true. Solar is usually financed, and as interest rates rose both finance and lease rates did to, squeezing out the marginal customer.

But its not the whole story.

The rest of the story took place in California.

In 2023 California changed the rules of how they would pay for solar. There was too much solar while the sun was shining, and the grid was overwhelmed.

In response, the state cut the price of solar during the day almost to nothing.

The new rules (called net electricity metering – NEM 3.0) decimated demand.

Wells Fargo estimates that California installs declined 32% YoY last year. With rates sky-high, the rest of the US could not pick up the slack.
Source: Zeo Energy Corp Investor Presentation

The market got worse every quarter of 2023. Bankruptcies ensued.
In 2024, the market has been bouncing along the bottom. But there are green shoots.

Wells noted that “permit forecast suggests resi solar installations could increase by 8% q/q in Q3 & another 12% q/q in Q4.” Early indicators like web traffic are turning up.

At the same time, the two big headwinds are beginning to abate. Interest rates are coming down. And battery attachment rates have shot up, mitigating the impact of NEM 3.0 – Enphase Energy (ENPH – NASDAQ) estimated 90% of their installs included batteries in Q2.

Into this recovering picture, Complete Solaria has just bought one of the largest installers in the US for pennies on the dollar.

BANKRUPTCIES CAN PAY OFF

Bankruptcies can be a big opportunity for a company to pick off assets on the cheap.

A couple months ago, I wrote about Amylyx (AMLX – NASDAQ), which also bought cheap assets out of bankruptcy. That stock is up 150% since then.

SunPower is a big fish to reel in. A couple of years ago its capitalization was over $7B.

In 2021 and 2022 SunPower made some poor decisions, selling everything but their residential business. When the bottom fell out, SunPower had nowhere to turn.

Yet SunPower was still the #3 solar installer in the United States last year.

Source: SunPower Investor Presentation

Complete Solaria was named stalking horse bidder when SunPower filed for bankruptcy in early August (the stalking horse bid is an agreed to bid before the auction, to show there is interest in the assets).

This was in the works before SunPower filed. Which is not surprising.

There is a long history between SunPower and Rodgers. In fact, Rodgers and Cypress used to own SunPower.

Source: Complete Solar Q2 Presentation

Rodgers rescued SunPower in 2000 with a $750K personal loan he made to the company. Cypress owned a majority stake in the company from 2002 to 2008.

At the peak, SunPower accounted for more than half of Cypress revenue. Under Cypress, SunPower grew 18x over 4 years.

Source: Complete Solar Q2 Presentation

In 2008 Cypress spun out SunPower. Rodgers stayed on as Board Chairman until 2011.

Rodgers is not doing this acquisition blindly. He knows SunPower as well as anyone.

WHAT THEY BOUGHT

Complete Solaria is poaching three businesses from the SunPower carcass:

1. Blue Raven Solar
2. New Homes
3. Portion of the non-install dealer network

On their Q3 call Rodgers said he expects $80M in Q4 from these businesses (including a small contribution from the legacy Complete Solaria business). In short order he hopes to bring that number to $100M.

For the 3 SunPower businesses Complete Solaria paid $45M and assumed another $7M of liabilities.

To pay for the assets Complete Solaria issued a $40.5M convertible debenture (with a 7% coupon).

The strike on that convert is $2.1375 per share. That seems like a steal, but remember, a few months ago the stock was well below $2.

How about the assets? Let’s put it this way: if this deal was made two years ago, it would look like a steal.

Together, these assets give Complete Solar a network that spans most of the country.

Source: Complete Solar Q3 Presentation

Blue Raven Solar is a stand-alone residential solar firm. SunPower bought Blue Raven in 2021.

SunPower paid $165M. Blue Raven has over 3,000 employees and operates in 21 states (SunPower bought them to expand outside of California).

Source: Complete Solaria 2024 S-4

At the time of the acquisition, Blue Raven had $136M of revenue and $13.6M of EBITDA.

At the time SunPower acquired them, Blue Raven had a CAGR of 93% since 2014. Of course it’s a different world now. Blue Raven likely isn’t growing much at all.

But this is still a well-run business. When Rodgers was asked about Blue Raven on the Q2 call he called them “an excellent shop”.

Blue Raven has already announced one expansion deal. Just this week they signed an installation sales agreement with Sunder Energy, one of the largest residential sales companies in the US.

The second acquisition is the New Home business, where SunPower partnered with home builders to add solar to new homes. New Homes had 20 homebuilding partners in all, including most of the biggest builders: Toll Brothers (TOL – NYSE), Meritage Homes, KB Homes (KBH – NYSE), Beazer Homes (BZH – NYSE) and Richmond America to name a few.

SunPower said the business had “more than 50% market share” of new home installs a couple years ago.

In 2023, the New Homes segment was 15-20% of SunPower’s overall business, had $100M+ quarterly bookings and a backlog of 37,000 homes.

Source: SunPower Q1 Supplemental Slides

That puts New Homes backlog at 18-24 months of installs.

Some of that backlog has slipped with the SunPower bankruptcy. On their Q3 call CFO Dan Foley said that 20-30% of the New Homes backlog had been lost as homebuilders scrambled to move their communities to new installers after the bankruptcy. But Foley said they are working hard to get those builders back and have made progress on that front.

In 2022 SunPower said that aEBITDA per customer was ~$2,200. In mid-2023, after solar slumped, they guided to $1,450-$1,650 per customer. While these numbers were for SunPower as a whole, SunPower said on a number of occasions that New Homes was a higher margin business.

Using those numbers as bookends, the New Homes business was a $40M aEBITDA business in good times and a ~$28M aEBITDA business in bad times.

As for the non-installer dealer network, this one is an unknown. This would be a lower margin sales generation arm of SunPower, where they bought signed contracts from third-party dealers that focused on generating sales.

Non-install dealers were a big network for SunPower. There were over 700 in 2023. But without knowing what fraction Complete Solaria bought its impossible to peg down the value. Though I think its safe to say that they only bought the best partners.

THE COLLAPSE OF THE INSTALLERS

Complete Solar is buying assets cheap in large part because the environment remains tough for solar installers.

Consider the following:

· Titan Solar, the 6th largest US residential solar installer, went out of business June 13th. Titan did 10,000s of installs across 16 states. Titan shut down their business entirely, including their dealer network.

· ADT Solar, a top-8 installer, announced they are exiting the residential business this summer.

· Palmetto Solar, a nationwide provider, announced they were dramatically scaling back their install business.

These aren’t small names. All 3 appear on the top ten list of installers (SunPower does as well).

Source: Wood Mackenzie

All-in there have been 100+ solar install companies that have gone away!

What has killed these guys is cash flow.

Solar is a cash flow business. You manage cash flow to keep the hamster wheel moving. Buy inventory, install inventory, collect cash and do it again.

Up until 2023, installers were helped by the financing companies. SunPower had its own wing that did this work – they offered 20-year ownership plans or solar leases with power purchase agreements where they paid to use your roof.

One role of the financing company was to provide upfront payments to installers. Installers could expect to receive as much as 50% of their costs at the beginning of construction.

Last year those payments went away. Today an installer can expect 80% after install and the rest once the project turns on.

This led to a capital crunch, then bankruptcies and will eventually lead to consolidation. When residential solar recovers, there will be a few market share leaders.

I suspect this is what is behind the rally in the two largest residential solar companies, SunRun (RUN – NASDAQ) and Sunnova (NOVA – NASDAQ).

Source: Stockcharts.com

Source: Stockcharts.com

The market is sniffing out the winners.

FROM SMALL FRY TO BIG FISH

SunRun and Sunnova collect a lot of revenue from customer financing and leasing.

They offer a number of financing options to homeowners. In many cases they just lease a roof from the homeowner, front cost of installation upfront and collect revenue directly from a power purchase agreement (PPA) with the utility. Sunnova isn’t even an installer; they focus purely on financing and power purchase agreements.

Complete Solar, at least for now, is not like that. They decided not to buy SunPower Financial.

Complete Solar is in the nuts and bolts work of putting solar on rooftops.

But I suspect that Complete Solar will look more like SunRun and Sunnova at some point. While the rate shock and NEM 3.0 has shaken the financing business, it will come back.

With Complete Solar having such a large install business across most of the United States, it just makes sense for Rodgers to move into financing.

BUILD IT AND THEY WILL COME

Will solar recover? While solar has certainly had its headwinds, that doesn’t mean that the demand for solar isn’t there – at the right price.

Sunrun calls the residential solar market “massive and underpenetrated”. Of the 88M single family homes in the United States, only about 4.5M have solar.

That is 5% penetration. By 2032 that number is expected to grow to 18%. Which would be a CAGR of 16%.

Source: SunRun Investor Presentation

This massive correction is really a massive reset on what solar is. We have stepped away from standalone panels. What is installed today is a panel/battery solution that allows electricity to be used when its needed.

Going from A to B was hugely disruptive. It caused much of the industry to fall by the wayside. But with comments like those from Enphase, I’d say the “pig is through the python”. This sets solar up for its next growth phase.

If I’m right about that, then Complete Solaria is beefing up its business at the exact right moment.

Rodgers said on the Q3 call that the business he owns now is a $80M quarterly run rate. He wants to get that to $100M in short order.

Even without a financing arm (something I think is coming) Complete Solaria is a lot less expensive than SunRun and Sunnova.

Source: Company Financials

Rodgers also seems to understand the importance of managing cash in this business.

On the Q3 call, Rodgers said to expect operating expense to decline from $43.5M in Q3 to just $17M in Q4.

This is far from being all roses.

We know the New Homes business has lost a few customers through the SunPower bankruptcy.

There were also some comments Rodgers made about Blue Raven that made it sound like that group – which has been tight knit and segmented from the rest of SunPower – may not be completely happy with the takeover. I checked LinkedIn and it looks like Blue Raven’s prior CEO is no longer with the division.

Finally, the SunPower offering was not the low-end panel. The good news is that these also weren’t Chinese panels (which will likely get tariffed even more under Trump).

Source: Complete Solaria Q3 Presentation

The residential panel market is bifurcated between leasing and buy-to-own and leasing is getting traction with high rates making buy-to-own financing difficult. Leasing uses the cheapest, panel + battery combinations, which ends up being TSLA inverters and China made panels.

Buy-to-own is where SunPower and Enphase are used because these homeowners are paying for what’s on their roof and so they care how long it will last.

That means that Complete Solar needs buy-to-own to come back and they need lower rates for that. And they need those cheap Chinese panels to get squeezed by tariffs.

These are all hurdles, and none are insurmountable. This is a turnaround and a roll-up – two tough stories in one.

On the other hand, Rodgers is the right guy for the job, and the price of tag they paid was bargain basement.

Rodgers is following the words of another great investor, Baron Rothschild who said “The time to buy is when there is blood in the streets.”

Lots of blood right now, and a strong experienced leader has put a lot of his own personal capital at risk to make this a success.