(Bloomberg) -- Walmart (NYSE:WMT) Inc.’s lawsuit against Tesla (NASDAQ:TSLA) Inc. over fires at more than a half-dozen stores threatens to undermine the automaker’s latest bid to reboot its foundering solar unit.
In the complaint Tuesday, the retailer said it had leased or licensed roof space at more than 240 stores to Tesla’s energy unit, formerly known as SolarCity, to install and operate solar systems. As of November, fires had broken out atop at least seven of the stores, Walmart said.
The suit marks another high-profile headache for Tesla’s solar unit, which has lost much of its market share as it repeatedly rejiggers its strategy. The complaint, filed in New York state court, accuses the company of shoddy installations and “widespread, systemic negligence.” It comes days after Tesla Chief Executive Officer Elon Musk announced a “relaunch” of the unit that once led the rooftop solar industry.
“The disagreement with Walmart could spook customers that Tesla is trying to bring back,” Hugh Bromley, a New York-based analyst at BloombergNEF, said in an interview Wednesday.
Tesla shares fell as much as 2.6% Wednesday, to $219.90. The company didn’t respond to requests for comment.
On Sunday, Musk announced that his Palo Alto, California-based company is now offering to rent solar panels to customers without long-term contracts. The move harks back to the no-money-down leases the unit popularized back when it was a standalone company.
Tesla bought SolarCity Corp. for $2.6 billion in 2016, then shifted away from leases to prioritize outright sales. It also ceased door-to-door marketing, ended a partnership with Home Depot Inc (NYSE:HD). and cut jobs. The company recently shifted to offering standardized panel systems online, rather than customized arrays.
Installations have fallen in the last seven of 10 quarters since Tesla bought SolarCity. Last month the company reported its fewest quarterly installations to date: 29 megawatts. It has also struggled to ramp up production of its sleek solar roof singles that Musk unveiled with fanfare in 2016.
Now, the solar unit faces a new challenge: Walmart.
Walmart’s inspectors found Tesla “failed to abide by prudent industry practices in installing, operating and maintaining its solar systems,” according to the breach-of-contract complaint. Many of the panels had defects that could be seen by the naked eye or were easily identifiable with proper equipment, Walmart said.
“This is the culmination of inattention being paid to the business,” Joe Osha, an analyst at JMP Securities, said in an interview Wednesday.
The case is Walmart Inc. v. Tesla Energy Operations, New York State Supreme Court, New York County.