Sunrun Receives Downgrade As Analyst Warns Business Model Relies On Inflated System Values For Tax Credits

Sunrun (NASDAQ:RUN) shares are trading lower on Tuesday after GLJ Research analyst Gordon L. Johnson II issued a downgrade for the stock from Hold to Sell.

Johnson noted the underlying equity is worthless unless SunRun can inflate the value of its solar systems to collect tax credits.

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SunRun’s first-quarter 2025 financial disclosure, he said, currently has over one million systems on its balance sheet.

Johnson said that assuming each of SunRun’s systems is underwater by ~$600, SunRun burns $644.56 million annually in cash when considering the current systems it has in service, which assumes the company has stopped growing.

But, if SunRun stops growing, it cannot plug the -$644.56 million annual cash burn, creating a circular problem (the more SunRun grows, the more cash it burns), the analyst noted.

One of the benefits of perpetually understating O&M costs is that it allows the overstatement of the value of the systems, enabling companies like SunRun, Sunnova and SunPower to claim tax credits beyond what would otherwise be available, he noted.

However, as detailed in the language from the U.S. Senate’s tax-and-spend bill, Johnson noted that residential solar finance companies would no longer be able to sell tax credits to third parties, which is potentially an existential threat to both SunRun and SolarEdge Technologies Inc (NASDAQ:SEDG) and, to a lesser extent, Enphase Energy (NASDAQ:ENPH). Also, the analyst said the 45 times credits for solar production were left unchanged, marking an incremental positive for First Solar Inc (NASDAQ:FSLR).

In short, he noted that removing SunRun’s ability to sell tax credits to third parties and considering the company’s never making money creates a massive problem.

According to Johnson (like Sunnova and SunPower before it), covering the ~$600 per system hole inherent in SunRun’s business will quickly overwhelm the company, barring its ability to overstate the value of its systems and then garner tax credits on these overstated values.

The key factor allowing SunRun to stay afloat has always been its ability to securitize loans or PPAs, bringing in hundreds of millions of new dollars each year, as per the analyst.

He said that the company’s ability to securitize allowed it to cover the gap in its real O&M expenses versus those it represented to the investing public. Yet, with the ability to securitize no longer there for SunRun (should the Senate’s version of the tax-and-spend pass), the company will quickly be unable to service its systems, Johnson said.

The analyst noted that this task would fall on the sponsor equity, draining most of its cash flow, as it is below the tax equity investors in the partnership flip capital stack. This also means the sponsor equity investors in SunRuns’ asset-backed security (“ABS”) bonds will quickly “head for the hills,” he added.

RUN Price Action: RUN stock is down 39.32% at $5.85 at publication on Tuesday.

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