Maxeon Solar Technologies just pulled a masterful move. On the surface, their settlement with SunPower over a contract dispute appears to be a concession. Maxeon agreed to resume shipments, fulfilling a portion of its obligation at previously contracted prices, while seemingly allowing SunPower to exit their long-term commitments. But beneath this surface lies a strategic masterstroke, a potential Trojan Horse aimed at seizing control of the US residential solar market.

Maxeon CEO, Bill Mulligan, characterized the settlement as a chance to "control our own destiny" by accessing installers directly, eliminating SunPower's markup, and offering "better pricing" to customers while securing "higher ASPs ourselves." This seemingly altruistic approach masks a calculated gamble that could pay off handsomely for Maxeon.

Here's why. The US residential solar market, particularly California, is in flux. The introduction of NEM 3.0 has created uncertainty, leading to a projected slowdown in demand. This slowdown, however, presents Maxeon with a unique opportunity. By stepping into the void left by SunPower, offering their premium, high-efficiency panels directly to installers at competitive prices, Maxeon can potentially capture a significant portion of the market during this period of uncertainty.

Consider this: Maxeon's IBC products have historically held a 10% market share in the US residential market. By bypassing SunPower, Maxeon can offer these same panels directly to installers at prices significantly lower than what SunPower could offer, while still maintaining higher ASPs than they are currently seeing in the European market. This strategy, coupled with the acquisition of Solaria's existing network of 170 dealers, could create a powerful force in the US market.

Further fueling this strategy is the timely arrival of Maxeon 7, their latest generation IBC panel. Boasting record-breaking efficiency and superior performance, Maxeon 7 is positioned to hit the market in mid-2024, coinciding with a projected recovery in US residential demand. This strategic timing allows Maxeon to solidify its position within the dealer network, offering a compelling product during a period of market resurgence.

The potential financial implications of this strategy are significant. While Maxeon is forecasting margin pressure and EBITDA losses in the near term, the long-term outlook is decidedly brighter. The US utility-scale business, anchored by their planned New Mexico factory, is on track for double-digit gross margins next year. Simultaneously, the expected growth of their US DG channel, driven by Maxeon 7 and their expanded dealer network, could quickly return DG margins to their historically robust levels.

Maxeon's Projected Revenue and EBITDA

This chart illustrates Maxeon's projected revenue and EBITDA based on information from their Q1 2024 Earnings Call.

Here's the hypothesis: by the second half of 2024, Maxeon's US DG business could be generating a comparable, if not higher, revenue than their European DG business. This shift in revenue mix, coupled with the high margin utility-scale business, could propel Maxeon back to EBITDA profitability within 2024.

This strategy, however, hinges on the successful execution of several key initiatives. Firstly, Maxeon needs to rapidly onboard a significant number of new dealers to replace the SunPower volume. Secondly, Maxeon 7 needs to live up to its hype, delivering the performance and reliability that justifies its premium pricing. And finally, Maxeon needs to manage their cash position effectively through this transition period, ensuring they have sufficient liquidity to support these growth initiatives.

Looking beyond the numbers, this situation reveals a deeper truth: Maxeon is no longer content to be a technology supplier, but rather aims to become a dominant force in the US solar market. Their settlement with SunPower, while seemingly a compromise, may ultimately prove to be a brilliant maneuver, positioning Maxeon to capture a commanding market share and reap the rewards of a rapidly growing industry.

"Fun Fact: Did you know that Maxeon’s solar panels have been used in some of the world's most challenging and remote locations, including powering research stations in Antarctica and providing electricity to off-grid communities in Africa? Their high performance and reliability have made them a trusted choice for demanding applications worldwide."