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SolarCity plant to start production by summer, Tesla says

The SolarCity solar panel factory in Buffalo is expected to begin production this summer, with the solar roofing tiles that will be one of the factory's flagship products hitting the market by the end of the year.

That's what Tesla Inc. said Wednesday, in its first update since the electric vehicle maker acquired the solar energy systems installer in November.

The factory this summer is expected to begin making the solar cells that convert sunlight into electricity in a solar panel. Panel production also will begin in the summer.

The solar tiles that make up the roof are expected to be produced and start to be installed by the end of the year, Tesla officials said.

"A lot of the equipment already exists and has been purchased. It will start scaling at the end of this year," said Jason Wheeler, Tesla's chief financial officer, during a conference call Wednesday. He was referring to the solar roofing product that Tesla introduced in October.

The update also revealed that Tesla has shifted into a cost-cutting mode with SolarCity, which has been plagued by growing losses and a steadily increasing cash drain as its business has expanded.

"We're prioritizing cash preservation for that business," said Wheeler.

Tesla said it has tried 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 reducing advertising and starting to sell solar energy products in Tesla stores.

Tesla 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 created a massive cash drain on SolarCity as its business expanded, 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, which greatly reduces its need to borrow more money.

The solar energy installer deployed 200 megawatts of solar generating capacity during the fourth quarter, which was about 26 percent less than it installed during the fourth quarter of last year.

Tesla said it expects SolarCity's installations to start rising again later this year.

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.

The company said it is on track to generate $500 million in cash by 2019 from the SolarCity deal.

Tesla also said it is on schedule to begin selling and installing its solar roof product, which builds solar cells into roof shingles. Musk believes Tesla can sell its solar roof for less than the cost of a conventional roof, plus the cost of electricity during its lifetime.

Tesla's earnings report was a mixed bag.

The company, which surprised analysts in November by turning a small profit, was unable to follow that with a second straight profitable quarter. In fact, its fourth-quarter loss of 69 cents per share excluding one-time items was bigger than the 42-cent loss that analysts were expecting. Tesla lost $2.02 per share during the fourth quarter last year.

But Tesla's revenues of $2.3 billion were better than the $2.2 billion that analysts were expecting and up 88 percent from a year ago.

The company said it expects to deliver 47,000 to 50,000 of its Model S and Model X vehicles during the first half of this year, which would be 61 percent to 71 percent more than a year ago.

Launch of the more affordable Model 3 sedan -- which is expected to sell for as little as $35,000 -- is on track for the second half of this year, the company said.

Tesla's shares, which slipped by 1 percent to $273.51 during Wednesday trading, rallied by 3 percent in after-hours trading following the release of the earnings report.

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