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SolarCity, gearing up to begin work here, cut 3,000 jobs in 2016

SolarCity eliminated a little more than 3,000 jobs – or about 20 percent of its workforce – over the past year as the solar energy systems installer moved to cut costs as its business cooled.

SolarCity said last year that it was moving to cut jobs and reduce costs but provided few details of its plans. It disclosed the scope of the cutbacks Wednesday in a regulatory filing.

The cuts affected workers across most of SolarCity's operations, including installers and manufacturing employees, along with sales, marketing and administrative staff, the filing said. In all, SolarCity finished last year with 12,243 employees, down from 15,273 at the end of 2015.

The job cuts come at a time when SolarCity also is gearing up to begin production at a sprawling solar panel factory in South Buffalo that the company has pledged will create 1,460 jobs and attract another 1,440 from suppliers and service providers. The company last week said it still plans to begin production at its Buffalo factory this summer, even as it cuts costs.

If SolarCity doesn't meet its job commitments, the company could face a penalty of $41.2 million a year from the state, which spent $750 million in taxpayer funds to build and equip the factory.

SolarCity officials had no immediate comment on the potential impact the cutbacks might have on the ramp up at the Buffalo factory, which will be operated under a partnership between SolarCity's new owner, Tesla Inc., and Panasonic Corp.

[Gallery: Take an inside look at SolarCity]

Tesla has signed a 10-year agreement with Panasonic to produce solar cells and solar panels at the RiverBend factory on South Park Avenue. Under that deal, Tesla will buy solar panels with a generating capacity of up to 1,000 megawatts of electricity from Panasonic each year.

Even before SolarCity was acquired by Tesla in a November deal worth more than $2 billion, the solar energy installer had said it planned to eliminate jobs and cut costs as its installations slowed and it faced pressure from investors to take steps to reduce its swelling losses.

SolarCity, for instance, eliminated 550 jobs in Nevada after the state eliminated a key subsidy for rooftop solar, prompting the company to end its operations in the state. It also eliminated more than 100 jobs at its San Mateo, Calif., headquarters and its office in San Francisco, according to a filing it made last August with California labor officials.

But the latest filing indicates that the scope of the cutbacks went far beyond those reductions. Tesla, as part of its plans for the SolarCity acquisition, also has said it expects about $150 million in cost savings by melding the solar energy company's operations into the electric vehicle maker's business.

"We're on track to go get that," said Jason Wheeler, Tesla's chief financial officer, during a conference call last week following Tesla's earnings release. "We've got the pieces in place to drive down customer acquisition costs."

SolarCity moving into its giant new RiverBend factory

Tesla said last week that it was trying to reduce SolarCity's stubbornly high customer acquisition costs – a key factor in the overall cost of building and installing a rooftop solar energy system – by spending less on advertising and starting to sell solar energy products in Tesla stores. SolarCity reduced its advertising spending by 8 percent last year to $26.3 million, the company said in the filing with the Securities and Exchange Commission.

Tesla also said it plans to continue moving away from SolarCity's original business model, which leased rooftop solar systems to customers with no upfront costs in exchange for 20 years of steady payments.

That model has created a massive cash drain on SolarCity as its business grew, forcing the company to constantly raise hundreds of millions of dollars in new capital from investors so it could cover the cost of the solar energy systems it was installing.

Instead, Tesla said it is shifting toward a business model where customers purchase their rooftop solar systems upfront. That model places more of a financial burden on homeowners, but Elon Musk, Tesla's CEO, has said residents often can finance rooftop solar for less than SolarCity can.

It also frees SolarCity from the heavy burden of having to front the cost of the rooftop solar. With each rooftop system costing upward of $20,000, shifting the financing burden away from the company and to the homeowner greatly reduces SolarCity's need to borrow more money.

Tesla said 28 percent of the solar generating capacity that SolarCity installed during the fourth quarter was from systems that customers purchased outright, more than double the 13 percent that were purchased in the third quarter and just 4 percent a year ago.

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At the same time, SolarCity's business is slowing. The solar installer deployed 26 percent less generating capacity in the fourth-quarter than it did a year ago. For all of last year, it deployed 845 megawatts of solar generating capacity, less than the 900 megawatts it predicted as recently as November and far less than the 1,200 megawatts it forecast a year ago.

In response to the slowdown, SolarCity trimmed its sales and marketing spending by 3 percent, while reducing its general and administrative expenses by 9 percent. It cut research and development spending by 15 percent.

Even so, SolarCity still lost $820 million during 2016, about 7 percent more than its $765 million loss in 2015, even though the company's revenues jumped by 83 percent to $730 million.

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