Tesla's solar energy business is slowing, and with the company focused on its all-important Model 3 electric vehicle, it's not expecting a quick turnaround.
Tesla says it's ahead of its hiring targets in Buffalo under its deal with the state. But for now, its solar business is running at a pace that's only a little more than half of the Buffalo plant's capacity.
In other words, Tesla's solar business will have to double in size for it to absorb all of the solar cells and panels the Buffalo plant can make – enough solar cells to generate 1,000 megawatts of electricity or enough to install rooftop solar on as many as 150,000 homes. And Tesla believes that better production methods can double the Buffalo plant's capacity to 2,000 megawatts.
Even so, the company said this week it is ahead of schedule on its promises to bring 2,900 jobs to the Buffalo Niagara region between the factory and the facility's suppliers and service providers. The factory was built and equipped with $750 million in state subsidies.
Tesla and its partner, Panasonic, have been ramping up production on South Park Avenue. Panasonic, which is making solar panels in its portion of the factory, has more than 300 employees on site, and plans to start making the solar cells that go into each solar panel at the factory later this month. The Buffalo factory will also protect Tesla from the new tariffs on imported solar panels imposed last month by the Trump administration.
Tesla, which is focusing on its new solar roof product that looks like a conventional roof but has power-producing solar cells inside, has started making its solar roof in Buffalo, although it has not said how many have been produced. The company views the solar roof as a key product that will help increase its solar installations and open the door to a new group of potential customers.
But that will happen slowly, and the company said Wednesday it does not expect growth in its solar business to return until later this year.
"Solar roof is truly the first-of-its-kind and there is significant complexity in both its manufacturing and installation," Tesla CEO Elon Musk and Deepak Ahuja, the company's chief financial officer, said in a letter to shareholders. "We are deliberately ramping production at a gradual pace."
Tesla has said it has a big backlog of orders for its solar roof from customers who were willing to put down a deposit, although it has never said exactly how many it has received.
"With demand outpacing production, we expect our backlog to remain in excess of one year for the next several quarters," the executives said in the letter.
For now, though, Tesla may have lost its place as the nation's biggest rooftop solar installer. The 87 megawatts of solar energy systems that Tesla deployed during the fourth quarter was the fewest it installed in any quarter since the beginning of 2014. Its deployments were less than the 90 megawatts of solar that its biggest rival, Sunrun, installed during the third quarter. Sunrun won't release its fourth-quarter installation numbers until next month.
'Backlog' of solar projects
Tesla has been making major changes in the SolarCity business it acquired in November 2016.
To stem SolarCity's losses, Tesla has reduced sales costs by eliminating door-to-door sales. It also moved away from SolarCity's growth-at-any-cost philosophy in favor of an approach that favored installations that were more lucrative.
Tesla also has changed the solar energy business' sales approach, adding solar energy and battery storage displays at the company's network of 330 stores that sell its electric vehicles. The thinking is that the same customers who want to drive an electric car are more likely to want to put solar panels on the roof of their home, and doing it at an existing location will reduce sales costs.
Tesla also announced earlier this month that it would start selling rooftop solar again in about 800 Home Depot stores.
"It's not our intent to indefinitely slow our solar sales," said Will Nicholas, Tesla's Northeast regional sales manager.
The company also says there is a natural synergy between its solar panels and the Powerwall batteries that it makes. Those batteries can store the electricity produced by Tesla's solar panels so it can be used at night or when the sun isn't shining. The "vast majority" of Tesla's solar energy customers also have ordered at least one of the company's Powerwall batteries, Tesla said.
But a shortage of Powerwalls also contributed to the drop in fourth-quarter installations.
"While volumes may continue to be impacted by these factors over the near-term, we expect growth to resume later this year," Tesla said as it reported a record quarterly loss of $771 million during the fourth quarter, three times the loss from the same period a year ago.
"We expect energy generation and storage gross margin to improve significantly in 2018 as we enter the year with a backlog of higher-margin commercial solar projects and a more profitable energy storage business due to manufacturing efficiencies from scaling," the company said.