In Tesla’s Q2 earnings call Elon Musk dropped this little bombshell:

“Our solar is now 30% cheaper than the U.S. average. After the Federal tax credit Tesla Solar now costs $1.49 per Watt.” -Elon Musk, CEO

I haven’t seen this spoken about much online, but this is a big deal. Why? Let’s get into it.

There were several things that came up during Tesla’s Q2 earnings call that really piqued my interest and what they brought up about Tesla Energy’s solar panel cost is just one of them. I’m planning on diving into the other points from that call in future videos, so be sure to subscribe so you don’t miss those.

But back to the cost of solar… In the United States, depending on where you live, the average cost of getting solar ranges between $2.51 and $3.31 per Watt before the Federal tax credit incentive. So an average-sized installation would cost you between $15,000 – $20,000 before incentives … or between $11,000 – $15,000 after incentives.1 When I got my solar panels installed in 2018, it cost me $3.12 per Watt before any kind of solar incentives. After incentives it was about $2.18 per watt including Federal and local incentives.

So when Elon said the following it really caught my attention:

“We recently adjusted the price of our retrofit solar. Tesla is the lowest cost solar in the United States. And we added a lowest cost guarantee and a money back guarantee. So we’re very confident that people will apply. Whether that’s a solar retrofit or solar roof. Our solar is now 30% cheaper than the U.S. average. After the Federal tax credit Tesla Solar now costs $1.49 per Watt.” -Elon Musk, CEO

If we follow Elon’s math, he’s citing a national average cost per watt at $2.88, which is right in the $2.51 to $3.31 range I mentioned earlier. Before incentives that means Tesla solar is right around $2.00 … $2.01 to be precise. To get down to $1.49 per Watt after incentives is kind of mind blowing for the U.S. market, which has been notoriously expensive compared to other countries around the world.

Speaking of around the world, I’ve heard from a lot of viewers in Australia questioning the crazy price I paid for my system compared to what they’re paying. And it is kind of crazy how big the price gap is. In Australia right now it’s not unheard of to have prices below $1.00 per Watt.2 Which raises the question: why is it so much cheaper in Australia? Or … to pose the inverse of that question … why is it so much more expensive here in the U.S.?

There’s actually a lot we can learn from Australia on this topic, especially when it comes to “soft costs” of installation, which refers to the non-component costs of the system like permits and inspections. These can have a profound impact on final costs. In fact, they can often add up to about $1 per Watt for every installation. That’s one of the ways Australia drove down prices. They simplified permitting requirements and hired dedicated solar inspectors.3 Meanwhile here in the U.S., permitting requirements vary not only by state, but often by local jurisdictions within states. And instead of having dedicated solar inspectors, we’re lumping that into the realm of home inspectors. Those are just some of the reasons why we see such wild variation in per-Watt pricing across the U.S.

One of the ways that Tesla has achieved these incredible, industry-leading prices is by reducing those soft-costs. They’ve simplified the sales and installation process. Instead of having a huge sales force that adds to the per-Watt fees, it’s all done online through a simple web form. I ran through this process to see what a system would cost me today and it’s impressive.

Tesla has preconfigured system sizes, kind of like a small, medium, large, and extra large sizing (another way to keep prices down), so I wasn’t able to configure a 1:1 match with my current 9.49 kW system. If I got a 8.16 kW system, their medium size, it would cost $16,400 up front. There’s that $2.01 per Watt pricing I mentioned before. If you account for incentives in my area and the Federal solar tax credit that’s still available, I’d be able to get $5,264 back for a final cost of $11,136. That makes for an even better price per Watt than what Elon said on the Q2 call … just $1.36 per Watt. And in my area there’s something called the SMART Solar Incentive, which is a series of payouts from my electric utility, Eversource. Over the course of 10 years it would add up to around $2,852 cash back. If you take that into account as part of this, you’re then talking about a system that would cost me $8,284 or about $1.02 per Watt … much lower than the actual $2.18 I paid for my current system in 2018. I don’t have regrets … I’m glad I didn’t wait, but that’s pretty sizable and not so far off from Australia for cost anymore.

In Tesla’s Q3 earnings call from last year, they actually spoke about this streamlined permitting and installation process.

“On solar, we’ve also simplified the fulfillment process with a goal of really fast order to install timelines. We’ve done many residential installs with a single related to a customers’ home because of the reduced complexity. We’ve also been working with cities and counties to submit generic permits that follow a template rather than customizing for every situation.” -Kunal Girotra – Senior Director Energy Operations

This is a really big deal. By working with cities and counties like that to reduce the complex paperwork, which in some circumstances is multiple forms and pages of documents, they’re reducing overhead. It’s making something that could take days to fill out and process and boils it down to a single, generic form that makes for faster approval. Or as Elon put it:

“We’ve pioneered a novel approach. It’s sort of an innovation applied to bureaucracy frankly.” -Elon Musk, CEO

This type of innovation might not be as exciting and visceral as a Model S in launch mode, but it’s just as game changing as what Tesla has done with electric vehicles. They’re rethinking the whole way the solar market has worked historically here in the U.S. It’s helping to push the prices down to a point that will make it more feasible to more areas of the country … even without incentives. And Tesla Energy is also providing energy storage to help manage the load that renewables put onto a grid … or your home. Solar and wind don’t always generate electricity at the times you need it most, so we need to be able to store it. Most headlines that involve Tesla are about their cars. And most analysts seem laser focused on the car side of the business without taking the Energy side into account in the same way. Elon’s said numerous times that he thinks the Energy side of the business is going to be as big, maybe bigger, than the car side.

“I think long term Tesla Energy will be roughly the same size as Tesla automotive. So the energy business collectively is bigger than the automotive business. So … how big is the energy sector? It’s bigger than automotive.” -Elon Musk, CEO

To that point, Tesla just won a major project for 800MWh of Megapacks for Switch in Nevada. It’s one the largest of it’s size.4 And last month they announced a project in California for a 400 MWh battery system. NRG Energy switched from installing a gas-fired peaker plant, which only runs when demand is high, to installing a solar panel system with energy storage.5

And then there’s the Autobidder software platform, which Tesla can layer onto energy storage systems like these to add even more value. In the UK Fotowatio Renewable Ventures and Harmony Energy are installing a 15 MWh Megapack system that will offset peak demand on the UK National grid. It’s going to be using Autobidder to automate how that system stores and sells energy. Getting into Autobidder might be a whole video on its own, but it basically takes wholesale energy market pricing, energy use, renewable generation … pretty much any assets the utility wants and needs to track … to determine how to best utilize the battery storage on the fly. It can save massive amounts of money for the utility and you only have to look at the success of the Hornsdale Power Reserve to see exactly how beneficial it can be.6 7 It cost around $50M to build, but reduced the cost of frequency control ancillary services by about $116M in 2019 alone.

So … Tesla Energy is successfully driving down per-Watt pricing for solar, which will help it get more traction in the market. More people will be able to afford solar and see a return on the investment faster. And I haven’t even mentioned Tesla’s Solar Roof, which offers an even better value for the dollar if you need a new roof at the same time as adding solar. They’re closing more and more deals on Megapacks to help utilities balance power demands and take advantage of increased renewables on the grid. Tesla Energy has been very quiet over the past few years. Slowly reworking itself in the background as it’s flashier sibling basks in the limelight. But it’s starting to look like Tesla Energy is standing up and demanding some attention now … and that’s pretty exciting … not just for Tesla, but the broader solar energy market.

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