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COMMENTARY

After starving energy business to make cars, Tesla is interested in solar again

David Robinson

Elon Musk says Tesla Inc. is getting serious about solar energy again.

After three years of cutting costs and diverting resources from its solar energy products while it focused on the rollout of the Model 3 electric vehicle, Tesla once again is paying attention to its shriveled solar business.

“One of the things that’s obviously delayed Tesla solar in general, for 18 to 24 months we had to focus the entire company on the Model 3 ramp," Musk said Friday as Tesla unveiled the latest version of the solar roof.

"We stripped resources from Solar for one and a half years, thereabouts. We had to make Model 3 work or Tesla wouldn’t exist," he said. "Now that Model 3 is a relatively smooth operation, we have been able to redirect resources towards solar and stationary storage.”

That's good news for Buffalo, where Tesla will produce its long-awaited and long-delayed solar roof – the linchpin in its plans to get the solar business back on track.

But it won't be an easy road back for Tesla.

By starving its solar business of resources, Tesla squandered the market leadership position it inherited when it bought SolarCity three years ago.

Instead of commanding a third of the residential solar market, Tesla's market share is down to around 6%, putting it behind rivals Sunrun and Vivint Solar, according to analysts at Wood Mackenzie. Its third-quarter solar deployments were the second-lowest in more than five years, even if they were up 48% from the record low set in the second quarter.

Musk said Tesla had no choice. It needed to put everything it had into launching the Model 3 – its first mass-market electric vehicle. If the Model 3 flopped, Tesla was going to be in big trouble.

After stunning analysts with a third-quarter profit, forecasting stronger fourth-quarter deliveries and saying both its Chinese gigafactory and its lower-priced Model Y SUV are ahead of schedule, Musk thinks Tesla can afford to pay more attention to its neglected solar and battery businesses.

"For about a year-and-a-half, we unfortunately stripped Tesla Energy of engineering and other resources and even took the cell production lines that were meant for Powerwall and Powerpack and redirected them to the car because we didn't have enough cells," Musk said during a conference call last week after the earnings announcement.

"Unfortunately, that shorted pretty much the other parts of the company," he said.

"It would be difficult for me to overstate the degree to which, I think, Tesla Energy is going to be a major part of Tesla's activity in the future," Musk said. "Tesla's mission from the beginning has been to accelerate the advent of sustainable energy. That means sustainable energy generation and sustainable energy consumption in the form of vehicles, electric vehicles."

For Musk, it was a come-clean moment. For much of last year, Musk kept saying solar roof production would be ramping up in Buffalo within months. It never happened. This year, he stopped mentioning the solar roof in Tesla's highly scrutinized quarterly shareholder letters.

Now comes the hard part.

Installation costs are key

To rebound, Tesla needs the solar roof to be a hit – and a big one. It's a product that makes the company stand out from its competitors in a rooftop solar business where solar panels are a commodity and branding doesn't have the same cachet as it does with other consumer products, like designer clothing.

How successful the solar roof is will depend, in large part, on whether consumers are willing to pay a higher upfront cost for a solar roof and how long it takes a homeowner to recoup their investment. Tesla said an average-sized Solarglass roof, which looks like a conventional roof but has solar cells inside, will cost almost $34,000, including an $8,550 tax credit.

The roof's success will hinge on whether Tesla can successfully install such a complex product – now in its third version – in a cost-effective and efficient way. Musk said Friday that Tesla has made good progress, cutting the number of parts in half and trimming installation times to around what it now takes to install a conventional roof and put rooftop solar on it.

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Tesla also has revamped the way it sells solar and rolled out new options that it says will make it less costly for consumers to install conventional rooftop solar – and potentially pair it with one of Tesla's Powerwall batteries so it can power a home at night and even during blackouts.

It scrapped door-to-door sales in favor of a sales strategy that pushes consumers online – a move that yielded big savings but also assumed that homeowners would be as comfortable purchasing a roof online as they are buying a pair of shoes.

"We don't do sales," Musk said. "There's no advertising, no marketing and no sales force. But would you rather pay for power or for marketing? I'd say you would rather pay for product."

Maybe. But so far, Tesla’s no-frills marketing has only led to plunging installations.

A big promise

Tesla limited its configurations for rooftop solar to a few standard sizes, reducing design and customization costs. It launched a program that allows homeowners to rent the solar panels on their roof for as little as $50 a month. Musk said Tesla is working to streamline the process for homeowners to get the required permits for rooftop solar by pushing a standardized permitting system that has been accepted by 350 municipal entities so far.

"We were able to lower our prices because our cost of [customer] acquisition is now less than a quarter of a typical solar company," said Kunal Girotra, Tesla's senior director of energy operations.

So Tesla needs to almost double the size of its current workforce at the South Park Avenue factory or face a $41.2 million penalty from the state. The Buffalo plant employs around 800 people between Tesla and its partner, Panasonic. It has promised to have 1,460 workers in Buffalo by mid-April, and if Tesla succeeds in selling enough of its Solarglass roofs, Musk thinks the Buffalo plant could be making 1,000 roofs a week within a few months.

Musk, who pushed a vision of creating a renewable energy juggernaut that combined electric vehicles with solar energy and battery storage, to justify Tesla's much-criticized $2.6 billion purchase of SolarCity, said that vision is intact after three difficult years for the solar energy business.

"It would be difficult for me to overstate the degree to which, I think, Tesla Energy is going to be a major part of Tesla's activity in the future," he said. "Sustainable generation and sustainable consumption – that's what we're doing. And we'll do more of it."

That's a big promise. Only time will tell if Musk – who has a long history of making big promises but taking far longer than expected to keep them – can deliver.

Tesla's solar business rebounds – and the solar roof is ready to be unveiled

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