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David Robinson: Elon Musk still has high hopes for Tesla's solar roof

Tesla Inc.'s solar panel plant in Buffalo isn't sharing in the good vibes coming out of the company's surprisingly strong third quarter.

At least not yet.

Tesla, which had hoped to start making its innovative solar roofing tiles in volume at its South Park Avenue factory by the end of this year, now says production won't start ramping up until sometime during the first half of 2019.

It's another delay for the factory at the center of the state's Buffalo Billion economic development program, which originally was supposed to be running full tilt two years ago, only to have its timetable pushed back by financial struggles within the solar business and Tesla's need to focus its resources on rolling out its mass-market Model 3 electric vehicle.

But that delay is only expected to be temporary, Tesla executives said.

And in the long run, Tesla's solar business likely will benefit if the electric vehicle maker's core auto business can make the company consistently profitable. A profitable Tesla will be better able to pump resources into its solar business, which is less than half the size it was two years ago as the company has steered most of its capital into its all-important Model 3 sedan.

Tesla called its third quarter "truly historic," posting a quarterly profit for just the third time and showing signs that the Model 3 can drive its earnings higher and help the company meet its significant cash and debt repayment needs.

"I've said before that we must prove that Tesla can be sustainably profitable," CEO Elon Musk said during a conference call Wednesday night. "This quarter was an important step toward that."

For the most part, analysts also were impressed, too.

"The Tesla narrative is starting to change as the company transitions to becoming sustainably profitable," Baird Research analyst Benjamin Kallo said.

"Tesla may have crossed the line to become self-funding, which would be another clear positive," said RBC Capital analyst Joseph Spak in a research note.

And while most of the focus by both Tesla executives and Wall Street analysts is on the company's electric vehicle business, Musk described the delay in rolling out the solar roof as just a temporary glitch in the development of a complex new product that requires a lot of engineering and testing work.

"That's quite a long development cycle, because that roof is going to last 30 years," Musk said.

Tesla plans to offer a 30-year warranty on the roof, so that means the company has to do a lot of testing in a condensed period of time to see if the solar roofing tiles really can last that long.

"Even if you do accelerate life testing as fast as possible, there's still a minimum amount of time to do that," Musk said.

The solar roof looks like a conventional roof but has solar cells inside. While the solar roof is expected to cost at least twice as much as a conventional roof, Tesla believes the savings from the electricity it produces will pay for itself during its lifetime, especially when paired with its Powerwall batteries to store the electricity for use at night or when the sun isn't shining.

Further slowing the rollout is Tesla's plan to install the roof with its own crews once it is ready for commercial sales.

"There's a lot of engineering that goes into how you put on the solar roof and not be really labor intensive in doing so," Musk said. "So there's a lot of engineering, not just in the tile, but in the way it's done."

For now, though, Tesla's solar energy business still revolves around conventional rooftop installations, and those have been steadily declining since it acquired the business from SolarCity in November 2016.

Tesla installed 93 megawatts of solar energy generating capacity during the third quarter, down 17 percent from a year ago but up 11 percent from the second quarter. Its solar deployments are down 42 percent through the first nine months of this year, and are 61 percent lower than they were during the first three quarters of 2016.

Tesla also has revamped its solar sales strategy in a push to reduce the stubbornly high costs of signing up new customers. It stopped selling door-to-door and stopped third-party sales at stores such as Home Depot. It also is shifting away from no-money-down leases of its solar energy systems and now gets 80 percent of its rooftop solar sales from consumers who pay for their installations with either cash or money that they borrowed themselves. Most of Tesla's solar sales now come from its own website and its network of 351 stores.

There is some urgency for Tesla to turn its solar business around. The company has until April 2020 to meet its promise to bring 1,460 jobs to Buffalo or else face potential penalties of up to $41.2 million a year from the state, which spent $750 million in taxpayer money to build and equip the RiverBend factory.

The factory now has more than 600 workers, more than half employed by Panasonic, which makes conventional solar panels in a portion of the plant. Tesla's production is expected to center around the solar roof, which has only been installed on a small number of homes, largely on a test basis.

But Musk said he still expects the solar roof to be part of a line of sustainable energy products that includes electric vehicles, battery storage and solar power.

Musk said he didn't know of any other company that would have a "better product roadmap, or even close."

"Maybe they do," Musk said, "but I don't know about them."

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