TSLA Tesla Inc

Tesla Motors Inc. plans to partner with Panasonic Corp. to make solar panels at a factory in Buffalo, N.Y. that was originally intended to be a SolarCity Corp. manufacturing plant.

Tesla' management team said in a blog post Sunday night that the company has entered into a non-binding letter of intent with Panasonic to "begin collaborating on the manufacturing and production of photovoltaic cells and modules in Buffalo, New York."

Tesla said it plans to sell electric batteries, along with Panasonic's panels, to residential, commercial, and utility customers. SolarCity will provide installation, sales and financing.

The agreement is contingent on approval of Tesla's proposed acquisition of SolarCity in an all-stock deal worth about $2.2 billion. Shareholders of the companies, both chaired by entrepreneur Elon Musk, are scheduled to vote on the merger Nov. 17.

Panasonic is a partner with Tesla at the company's Gigafactory battery plant near Reno, Nev. Tesla and SolarCity plan to unveil a separate product later this month that will still also be made at the Buffalo factory: a roof that generates solar power.

Shuuji Okayama, Vice-president, Eco Solutions Company of Panasonic, added, "Panasonic PV cells and modules boast industry-leading power generation performance, and achieve high quality and reliability. We expect that the collaboration talks will lead to growth of the Tesla and Panasonic relationship."

"We are excited to expand our partnership with Panasonic as we move towards a combined Tesla and SolarCity," said Tesla Chief Technical Officer J.B. Straubel in the blog post.

Cash-strapped SolarCity faces a series of financial commitments as part of its deal with New York for the Buffalo factory, which is being partially financed by state taxpayers, who are set to cover $750 million in construction and equipment costs.

Among other requirements, SolarCity is supposed to spend $130 million the year after the factory is completed and the manufacturing equipment has been delivered, according to a 2014 agreement between the company and state representatives.

The company promised to create 500 factory jobs and 960 additional jobs in Buffalo, and 2,000 other jobs in the state within five years of the factory's opening.

In response to questions, SolarCity recently said it was committed to the factory project but declined to disclose how it planned to fund its commitment to it.

The factory is part of a New York economic revitalization project known as the Buffalo Billion that is now the subject of a federal corruption case.

SolarCity, a tenant in the factory building, hasn't been named in the probe.

Jason Conwall, a spokesman for Empire State Development, the state agency overseeing the Buffalo Billion project, said construction of the building is set to be completed next month, and that it could start churning out products by the end of June.

New York consumer advocates have worried that the factory could fail, noting that SolarCity has yet to pledge any real money to it.

"SolarCity has no capital invested, it is just paying operating costs," Kenneth Girardin, a spokesman for the non-profit Empire Center for Public Policy said prior to the Panasonic announcement earlier this month. "What is to stop them from walking away?"

SolarCity has more than $3 billion in debt and has not turned a profit since it went public in 2012. The company spent $438 million this year through June, 42% more than its revenue of $308 million. It had $146 million of cash on June 30, from $421 million a year earlier.

Low on cash, the company has raised $405 million in the last few months to help shore up its finances, including selling $100 million in bonds to Mr. Musk, SolarCity Chief Executive Lyndon Rive, and his brother Peter Rive, the company's chief technology officer. Mr. Musk and the Rive brothers are cousins.

While SolarCity is the largest installer of home solar panels in the U.S., it doesn't currently make the panels it sells. Its move into manufacturing comes at a time when existing makers are struggling due to a global glut of solar panels.

Wholesale panel prices have fallen by about 15% this year, to about 61 cents a watt, on average, said Paula Mints, chief analyst at SVP Market Research in San Jose, Calif., adding that some panels made in China are going for as low as 40 cents a watt.

"As we go down this long road to unprofitability, entering this market is insane," Ms. Mints said.

Kady Cooper, a SolarCity spokeswoman, said the company "can produce high-efficiency panels with superior aesthetics at costs similar to commodity panels."

"Our products require customization that can only be scaled if we control the manufacturing," she added.

(END) Dow Jones Newswires

October 17, 2016 09:25 ET (13:25 GMT)

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