Tesla Has This Key Business That Relies on the Sun That Elon Musk Isn't Talking About Much
Amid all the news about Tesla's (TSLA) - Get Report big Model 3 release and outperforming earnings report, one area fell under the radar.
Not much has been said about how Tesla's solar business is faring, beyond the fact that the company received orders for its solar roof tiles in the second quarter and has begun installing units. During the earnings call on Wednesday, CEO Elon Musk said both he and CTO JB Straubel have installed the solar roof on their homes.
Tesla has marketed its tempered glass roof tiles as a cheaper alternative to traditional solar panels, which sit atop traditional roof tiling. The tiles, which come in four different options, including Tuscan, slate, smooth and textured, are covered with glass that allows sunlight to pass through and into a solar cell. Active tiles with the solar cells cost $42 per square foot, while inert tiles are priced at $11 per square foot -- both include the cost of labor and materials. Tesla says the tiles are three-times stronger than standard roofing tiles and are built to weather the elements.
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The company began selling the tiles on its website in May, requiring a $1,000 deposit for a package that includes removing a house's existing roof, installing the glass tiles and providing spare power via a Powerwall 2 battery. Tesla initially produced the tiles at its factory in Fremont, Calif. but will begin producing them at a plant in Buffalo, N.Y. later this year.
"This is version one," Musk said on the earnings call. "I think this roof is going to look really knock-out as we just keep iterating."
A mock-up image showing what Tesla's Solar Roof would look like.
Tesla's energy generation and storage segment includes the SolarCity business, which Musk had been the chairman and largest shareholder of and which Tesla acquired for $2 billion last November. The segment continued to grow during the quarter. Revenue for the unit was $286.8 million, up 34% quarter-over-quarter. The company deployed 176 megawatts of solar energy generation systems in the second quarter, up from 150 megawatts in the prior quarter.
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Energy storage deployments decreased year-over-year, however, owing to Tesla's decision to end SolarCity's door-to-door sales strategy, in favor of selling services at Tesla stores and online. The company expects growth to resume in the fourth quarter. Those energy storage deployments likely include installations of Tesla's lithium-ion battery storage units -- the Powerpack and the Powerwall.
While the business appears to be on track, some analysts have expressed skepticism around whether it can continue to scale. Experts and analysts have raved about how Tesla's solar roof and energy storage products are positioned to revolutionize solar power use, but the business still seems to be in early days and it's unclear whether it will remain a small part of the company's overall business. In the latest quarter, the energy generation and storage segment accounted for just 10% of Tesla's overall revenues of $2.79 billion.
Tesla executives have also remained relatively tight-lipped when it comes to specific details, such as how many solar roofs sold so far, beyond noting that they're sold out far into 2018, according to Business Insider.
"If it's doing well, the numbers are shared and if it's not, the numbers are kept under wraps," said James Hodgson, industry analyst at tech consultancy firm ABI Research. "We haven't gotten a great deal of insight."
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Tesla is tapping into two promising markets by moving into home energy and power storage. The areas are also a natural extension of its work in mobility services and alternative energy, Hodgson noted.
"It makes sense to repurpose what you've already done for powering the home," he added. "When you have those two links in the chain -- the connection between the car and the home and then energy capture -- you have a vertically integrated business model."
Others aren't so sure, however. Gordon Johnson, managing director of advisory firm Axiom Capital Management who's notoriously bearish on the solar market, said demand for solar roofs has fallen nationwide over the last several months. Additionally, Tesla's solar roof tiles are still more expensive than traditional materials, making them a hard sell for the average consumer, he noted.
"The reality is we don't know much about their roof business," Johnson said. "We believe the reason they're not giving details is because it's not competitive against what [other solar roof options] are out there."
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