Will Tesla's Solar Roof Really Cost Less Than Normal Roof as Musk Claims?

Following the news that Tesla Motors (TSLA) and SolarCity (SCTY) shareholders had voted to approve the companies' $2.6 billion tie-up, Elon Musk told investors that the new clean energy behemoth would now be able to provide homeowners with a solar roof that costs less than a traditional roof before factoring in the savings from energy generation. 

"It's looking quite promising that a solar roof actually cost less than normal roof before you even take the value of electricity into account," he said in a speech after the vote was called. "So the basic proposition would be 'Would you like a roof that looks better than a normal roof, last [sic] twice as long, cost [sic] less and by the way generates electricity' why would you get anything else."

Claiming a solar roof will be cheaper in the long-run than a traditional roof with asphalt shingles is one thing when factoring in the expected utility bill savings from generating your own power-- this is the primary premise behind spending thousands of dollars on currently offered rooftop solar panels. 

But even as the costs of solar panel components continue to decline, the claim that a roof made of high-grade solar technology will be cheaper to produce and supply than one covered in asphalt shingles available at your local Home Depot (HD) is bound to face some skepticism. 

Indeed, the longtime solar bears at boutique research and investment banking shop Axiom Capital Management are not biting. 

Axiom's Gordon Johnson wrote Friday that based on the average price of asphalt shingles available on Home Depot's website, the cost of the main component of a traditional roof is about $1 per square foot. 

Traditional rooftop solar panels provide about 15 watts of power per square foot, according to solar power information website SolarPowerRocks.com.

Based on this estimate, and assuming a polysilicon module cost of 40 cents per watt (the low-end of Tesla's projected cost of producing solar panels), Axiom's Johnson calculates the cost for rooftop solar is about $6 per square foot.

Therefore, all other things equals, the key input costs for solar rooftop shingles could be 6 times higher than the key input costs for a traditional roof. 

But Axiom argues all things are not equal, including the cost of distribution. 

For example, while a contractor can pick up asphalt shingles from any local Home Depot, Tesla's shingles will likely be sourced from its forthcoming one-and-only Buffalo, N.Y., manufacturing facility, Johnson wrote. 

Based on quoted costs for transporting clay tile roofs, Axiom calculates the cost of transport for Tesla's solar roof could add $1 to $3 per watt to the total acquisition cost for solar rooftop installations. 

Furthermore, Axiom notes that Tesla won't even have the cheapest solar rooftop solutions, as SolarCity noted earlier this year that it is targeting manufacturing costs of between 40 cents and 45 cents per watt over time.

Several Chinese solar panel manufacturers, including Trina Solar (TSL) and Jinko Solar (JKS) , are already producing at costs below 40 cents per watt, the firm wrote.

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