Chasing The Sun
The Rundown - Your weekly SPAC Deep Dive (04/09/23)
Happy Sunday Friends,Â
In the wake of soaring energy prices and heightened concerns over energy security following the Russia-Ukraine conflict, residential demand for solar power has skyrocketed. This surge in interest is further fueled by a combination of factors: the reduced cost of solar panels thanks to increased manufacturing scale and the Inflation Reduction Act that extends the 30% solar tax credit, making solar more accessible to a broader segment of society. Amidst this solar boom, Complete Solaria is gearing up to go public through a SPAC merger later this year. But how will Complete Solaria navigate and succeed in an increasingly competitive market?Â
Solar BoomÂ
Despite favorable tailwinds like the Inflation Reduction Act and energy security concerns fueled by geopolitical tensions such as the Russia-Ukraine conflict, solar sales in the US have experienced a decline as a whole. New solar installations dropped by 16% to 20.2 gigawatts (GW) in 2022 from the previous year, primarily due to a ban on some Chinese goods that limited panel availability. This decline, however, primarily impacted utility-scale solar installations, which saw a 33% reduction.
In contrast, the residential solar market has continued to gain momentum, growing by 40% with a record 700,000 homeowners installing rooftop solar in 2022. This growth has been driven by record-high energy prices, which have motivated homeowners to invest in long-term cost savings through solar power. Despite the impressive growth, the residential solar market remains under-penetrated, with estimates suggesting that only one-fifth of single-family homes currently have solar installations.
Solar systems offer immediate savings compared to utility bills and deliver substantial value over the lifetime of the system. As a result, numerous solar companies are vying for a share of the energy transition and the expanding residential solar installation market. Among them is Complete Solaria, which is set to go public this year through an $888 million merger with SPAC Freedom Acquisition I Corp.
Complete Solaria was formed through the recent merger of Complete Solar, a company offering sales, installation, O&M, and digital customer interfaces, and Solaria Corporation, a producer of all-black, high-power premium solar panels distributed through 1,306 partners. This combined entity now provides a comprehensive range of solutions, from solar modules and software solutions to finance products, installation networks, and long-term customer support.
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Capturing the Value ChainÂ
Complete Solaria sets itself apart in the residential solar market by offering a comprehensive, end-to-end solution. By integrating the entire value chain – from solar panel design, manufacturing, and distribution to installation, financing, and long-term management – the company aims to create a seamless customer experience and stay ahead of the competition. The company also plans to achieve its competitive edge through a combination of hardware and software.
Complete Solaria's PowerXT panels deliver more power and better shade tolerance than their competitors, providing customers with higher energy output. The company maintains a low CapEx contract manufacturing strategy and a diversified supply chain, ensuring module and cell manufacturing is distributed across India, Vietnam, Cambodia, and Thailand. This approach mitigates supply chain risks and enhances competitiveness.
Complete Solaria offers end-to-end software solutions designed to guide customers from the point of sale through the life of their solar systems. This comprehensive approach guarantees smooth system management and ensures customers can rely on Complete Solaria for long-term support. Looking ahead, Complete Solaria plans to fuel growth by leveraging merger synergies, expanding partnerships, and upselling energy goods and services.
The company intends to broaden its partner network to include non-traditional solar sales companies like HVAC contractors, roofers, and other home services firms, as well as corporate partnerships with EV OEMs and new home builders. Additionally, Complete Solaria aims to expand its product offerings by adding heat pumps, electric hot water heaters, and grid services/load management to its existing lineup of energy storage, roofing, and EV charging solutions.
Financials and ValuationÂ
In the fourth quarter of 2022, Complete Solaria demonstrated significant revenue growth, reaching $37 million, and achieved favorable gross margins of 31%. The company's outlook remains positive, with projected revenues scaling from $115 million in 2022 to $397 million by the end of 2024.
High growth visibility, particularly in the first and second quarters, is supported by $82 million in contracted revenue already identified. Complete Solaria anticipates that favorable operating leverage will improve gross margins by 300 basis points (from 29.7% in 2022 to 32.8% in 2023), helping the company reach operating profit by the third quarter of 2023.Â
As Complete Solaria prepares for its SPAC merger, the company has successfully raised $30 million in bridge financing from notable investors such as John Doerr, Tidjane Thiam, and TJ Rodgers.
The upcoming deal with Freedom Acquisition I Corp values the combined entity at $888 million, representing a valuation of 3.1x 2023 forward revenues, which is comparable with other industry players. If Complete Solaria can successfully execute its strategy—expanding partnerships, building its product line, and extending its margins—its future prospects appear favorable.Â
Bottom LineÂ
Complete Solaria's strategy to encompass the entire value chain and provide a comprehensive customer experience sets them apart, but it remains to be seen how effective this approach will be in the face of strong competition. Innovative solar panels, advanced software solutions, and diverse financing options position Complete Solaria as a noteworthy contender in the market. However, the company's success will ultimately depend on its ability to execute its ambitious growth plans, which include expanding partnerships and diversifying product offerings. Given the ever-changing nature of the solar market and external factors such as policy changes and supply chain disruptions, the company will need to remain agile and adapt to maintain its competitive edge.