Workers install solar panels during a SunPower installation on a home in Napa, Calif., last July. The U.S. residential-solar industry is under serious threat – a vulnerability borne out this week by the bankruptcy of SunPower Corp., one of the sector’s most venerable names. David Paul Morris/Bloomberg, file

The U.S. residential-solar industry is under serious threat – a vulnerability borne out this week by the bankruptcy of SunPower Corp., one of the sector’s most venerable names.

The California company had its own series of financial missteps. But those stumbles happened against the background of high interest rates, which make panels less affordable for homeowners, and a major subsidy cut in its home state – the country’s biggest solar market. The change has significantly slowed demand and crimped profits for rooftop firms.

The SunPower saga underscores that there’s little room for error in the sector. Rooftop solar companies have become too dependent on growth-focused strategies that need repeated rounds of external funding, said T.J. Rodgers, chief executive officer of Complete Solaria Inc.

“The enemy is growth,” he said in an interview, hours after SunPower announced that his firm had submitted a $45 million stalking horse bid for much of its assets. He added that “misguided” expansion “at all costs” is the problem. Complete Solaria’s bid would need approval by a bankruptcy court judge to move forward.

Rodgers, a Silicon Valley veteran who served as SunPower’s chairman from 2005 to 2011, is a stalwart solar advocate. For rooftop providers, he said, the key to survival will be fiscal discipline – running the operation like a small business that depends on its own cash flow rather than outside financing.

“Every time they burn money and need more money, the noose gets a little tighter,” Rodgers said. “It’s 2008 in housing again.”

Home energy companies have struggled to chase growth and build their cash positions, especially in this period of high interest rates. Their struggles were exacerbated after California slashed subsidies for solar-only home systems, which triggered a sharp sales decline after it went into effect last year. Total U.S. residential installations are projected to fall 14% this year from 2023, according to the Solar Energy Industries Association, a Washington-based trade group, and research group Wood Mackenzie. In California, solar deployments could plummet by 40%.

“SunPower is the largest solar company to fall in the past year, but it is far from the only casualty,” said Bernadette Del Chiaro, executive director of the California Solar & Storage Association, in a statement, pointing to dozens of firms that have gone bankrupt or fled California after the subsidy change.

For SunPower, its troubles became public in October, when it realized it had overstated the value of its inventory. It said it would need to restate some earnings reports. That led to delays in filing its subsequent results, which then triggered an event of default on some of its debt. Issues cascaded from there, ultimately hindering the company’s ability to raise needed cash, said SunPower’s chief transformation officer, Matthew Henry, in a bankruptcy filing Monday. The company did not respond to a request for comment Tuesday.

In SunPower’s initial court hearing Wednesday, the company won approval to keep operating using cash that had been set aside as collateral for lenders. The company plans to hold an auction for its primary businesses while liquidating any remaining inventory in a separate sale, company lawyers said in court.

Even in the best of times, margins for rooftop solar companies tend to be slim. The businesses must compete against each other on price, and customer acquisition costs remain high, said Pol Lezcano, an analyst with the BloombergNEF research firm. Not even SunPower – founded in 1985 and a survivor of previous rounds of industry contraction – was immune to these basic balance sheet facts.

“They were one of the original solar companies in the U.S.,” Lezcano said. “From a legacy and symbolic point of view, it’s a shame.”

Other solar executives have reached the same conclusion as Rodgers: pursue cash generation, not growth at all costs.

In this climate, “the right thing to do is to not grow” and instead stockpile cash and pay debt, said John Berger, CEO of Sunnova Energy International Inc., in an interview Tuesday. This strategy follows years of growth that made it one of America’s biggest rooftop companies. “You can’t necessarily depend on better financial conditions down the road.”

Bloomberg writer Steven Church contributed to this report.