Walmart’s lawsuit over solar panel fires is the latest ‘tarnish’ on Tesla, analyst says

Walmart Inc.’s lawsuit against Tesla Inc. over several roof fires that the retailer blames on solar panels is “yet another blow to the already tarnished” solar business at Tesla TSLA, -2.16% , analysts at ISI Evercore said in a note Wednesday.

Walmart WMT, +0.13%is suing for breach of contract, alleging “gross negligence” on Tesla’s part for the fires, which it says started on the rooftops of several stores that had Tesla solar panels.

Read more: Walmart sues Tesla over solar-panel rooftop fires

Wall Street will watch the suit unfold for “potential liabilities,” the analysts said. Tesla’s $2.6 billion SolarCity Corp. acquisition in 2016 “has not yet been accretive” to Tesla, given the 85% reduction in solar installations over the past three years, they said.

Tesla shares were down more than 2% on Wednesday, bucking an upward trend for the broader equity market. Earlier in the week, Tesla vowed to revamp its solar business by offering rentals.

Related: Tesla slips to third place for solar installations in the U.S., Sunrun keeps lead

The headache from Walmart’s lawsuit was not the only spot of bad news swirling around for Tesla. On Wednesday, well-known analyst Toni Sacconaghi, from Bernstein, pinned the decline in sales of the Model S and Model X on the much-feared competition from luxury car makers.

Profit on Model S and Model X sales has declined by 57% in the first half of the year compared with the first half of 2018, Sacconaghi said in a note. Common explanations include cannibalization from the Model 3 and the vehicles’ “tired” product design.

Bernstein’s analysis, however, point to “primarily due to competition, particularly in Europe, from Jaguar and Audi. Model 3 cannibalization does not appear to be a significant factor,” he said.

Despite the introduction of new offerings from Tata Motors Ltd.’s TTM, -7.56% Jaguar and Volkswagen AG’s VLKAF, +1.88% Audi, high-end electric-vehicle sales, or those vehicles costing more than $60,000, have not increased, “but rather the (Jaguar) iPace and (Audi) e-Tron appeared to have displaced units from Tesla,” Sacconaghi said. In “other words, the market isn’t growing much, and Tesla is losing share.”

Things look better for the Model 3: For mid-market electric vehicles, “new entrants, such as the Model 3, have materially expanded the market, with limited volume impact to incumbents,” Sacconaghi said.

Tesla shares are down 33% this year, contrasting with gains of 17% and 12% for the S&P 500 SPX, +0.85% and the Dow Jones Industrial Average. DJIA, +1.06% 

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