In the third quarter Tesla earnings call, they dropped a lot of great financial news for the company. You’ve probably seen some of the excellent coverage on the financials from different news and social media channels, but as exciting as it is to see Tesla hit profitability this quarter, the announcement of Solar Roof 3.0 really piqued my interest. Tesla Energy has been on the back burner the past couple of years, but it looks like that’s about to change. Let’s take a closer at those calls and webcasts to pick apart some of the announcements.
Declining solar business
Over the past year or so, we’ve seen the Tesla Energy business falter a little bit. From Q1 of 2018 through Q1 of 2019 there’s been a trend line downwards in revenue,1 which has concerned many financial analysts about the health of that portion of the Tesla business. But for anyone that follows Tesla, we all know that they’re playing the long game and don’t worry about quarter to quarter profits if it means hurting long-term goals.
One of the biggest challenges to every EV manufacturer is battery cell production volumes. It takes an incredible number of batteries to manufacture and sell cars at mass market scale, which is the reason that Tesla built the Nevada Gigafactory in the first place. As Tesla was ramping up Model 3 production in 2018, they became cell starved, which meant prioritizing cell delivery to the Model 3 instead of the Tesla Energy business.2 From the Q2 2018 earnings call:
“We’re kind of cell starved for Powerwall right now, so we actually had to artificially limit the number of Powerwalls because we don’t have enough cells. So we’re solving for that very rapidly and we expect to ramp up Powerwall and Powerpack production substantially later this year and early next and as well as ramping up retrofit solar and then the Solar Roof.”
“We did shut down a Powerwall cell line in favor of Model 3 to be totally honest but we kind of had to do that. But we’re adding new cell lines and we’ll be able to address that issue very soon.”
Tesla also made significant changes to how they ran the solar business.3 They cut large percentages of the sales workforce and retail solar as they moved towards a system similar to how they sell their cars. The main focus is selling directly to customers online instead of having a large sales force in retail locations. They also stopped leasing solar, which was SolarCity’s biggest segment of sales in retail solar installations.
All of these changes and transitions put the squeeze on the Tesla Energy group and made things look bad from a certain perspective. Mainly from Wall Street. But again, 2018 was a transition year for the group and we’re starting to see that play out in 2019 and into 2020.
A clear path forward
While all the turmoil was happening with restructuring the retail solar business, and redirecting cell production and resources towards resolving the Model 3 ramp, their grid scale energy storage products have seen huge growth.
By mid 2019 Tesla had seen a 81% growth between Q1 and Q2 in their Powerwall and Powerpack installations.4 Even with being cell starved they still managed to triple their energy storage deployments in 2018. That’s an incredible feat and shows how much potential there is now that they’re restoring the flow of cell production, and resources back into the Tesla Energy business. Just look at the most recent Q3 numbers and they’ve deployed 477MWh, which is a 15% increase over the previous quarter and a 99% increase over the previous year.5 Tesla solar is also starting to see a rebound with a 48% increase in installed capacity over the previous quarter.
After killing off their solar leasing option, they released their new solar rental option earlier in the year. This one really piqued my interest and I’ve been meaning to talk about it on the channel for a while. It’s a pretty interesting rethinking of the whole solar panel ecosystem, which opens up solar to a whole new group of potential customers. With no money down or long contracts, you can get into solar quickly and drop it at any time if you’re not happy. While buying solar panels for you home will reap the biggest benefits financially, the rental option takes the financial burden out of the equation. It basically works like this: pick from a small, medium, or large solar panel array. Tesla will arrange installation and charge you a flat rental fee per month for the system. The rental fee will be less than the savings you get on your electric bill, so you’re electric bill plus rental fee will be less than your non-solar electric bill before the panels were installed. You’ll start seeing a reduction in your energy bill from day 1 and don’t have to worry about anything else.
“So, it’s kind of a no-brainer. It’s really, do you want something that prints money? And if it doesn’t print money, we’ll fix it or take it back. It’s kind of a no-brainer. And it sort of plays into Tesla’s overarching strategy here which is effectively to become a giant distributor global utility…” – Elon Musk6
And because of how they’ve restructured the solar sales business, it’s allowing them to offer compelling prices compared to the competition.
“Yeah, I think to your point of buying Tesla Solar is easy because we have one of the lowest prices in the nation now, in the country, and just a little bit of story there. We were able to lower our prices because our cost of acquisition is now less than a quarter of any typical solar company.” -Zachary Kirkhorn
“We don’t do sales.” -Elon Musk
“Yeah, we do online sales, online orders…” -Zachary Kirkhorn
“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 the product.” -Elon Musk
And they’ve been optimizing the installation process, including creating a single permitting form that’s being adopted by many cities, to be able to install solar panels in a single visit.
”Yeah, single visit install is a big deal. We’re taking it from where the solar industry would often be three visits before the solar was installed and would often take a lot of time to do the installation. But we’ve streamlined all of that to the point where in many cases it’s a single visit to do everything, and it’s fast, minimized disruption to the homeowner. And ordering solar is literally one click. You can order solar for you house in less than one minute.” -Elon Musk
Which brings me to the Solar Roof 3.0 that Tesla just announced. This is the first version of the product that Elon has said is ready for mass deployment. One of the big challenges to the roof is around the installation process itself. Previous versions of the roof were complex and difficult to install, so they spent a lot of time on research and development to improve that. The physical size of the tiles are now larger, the power density of each tile has increased, and the number of parts required for the installation has been reduced by more than half. And they’ve even changed up the underlying solar cell technology.
“We also changed some of the materials in use and changed the the methods that we’re using to the technology that we’re using to achieve the hidden solar cells to something that’s more scalable.” -Kunal Girotra, Senior Director Energy Operations
“This is one of the hardest things about the Tesla solar glass roof … is not seeing the solar cells beneath the glass because that is kind off putting to see the cells. And then the hard part is you want this … you want the the photons from the sun to get to the solar cells, but not create something which is aesthetically unappealing. It’s quite a hard challenge.” -Elon Musk
“Yeah, solar cells are optically isotropic, meaning it can look purple from one angle and green from another. And we have through a number of different iterations and technology experiments landed on a technology that gets the solar tiles the point where they’re anisotropic. So they blend in with the surrounding non-solar tiles and the trim.” -Kunal Girotra, Senior Director Energy Operations
“They look the same from any angle.” – Elon Musk
“Exactly.” -Kunal Girotra, Senior Director Energy Operations
While some of the product specifics weren’t addressed during the webcast, the basics of the system sound like it’s going to make a big difference in installation time and overall cost. According to some initial reports, the price has dropped by as much as 40% with this latest iteration.7
For a point of comparison, I put my information into the Tesla Solar Roof cost estimator and got $32,348 for a 14 kW roof. That’s dramatically lower from the Solar Roof 2.0 I looked at over a year ago, and not much more than I paid for my 9.49 kW system, which matches up with Elon’s point that you’ll come out ahead if you need to replace your roof at the same time as installing new solar panels. And you’ll also be able to squeeze more solar production on your roof where standard solar panels won’t fit, which means you can get a higher kW system vs. a retrofit style panel install.
Add to that the plan for opening up installations to third party installers.
“The solar glass roof, while we were going to start out having our solar installers do it, this is something that we intend to open up for roofing contractors in general. So unlike vehicle sales which only go through Tesla stores or online and that’s that’s because we’re we’re sort of we only get trapped in like franchise law and there’s a lot of complexities in automotive distribution that if we kind of break precedent there it’s highly problematic potentially in many places. But for the Tesla solar glass roof I think it’s a different situation. You don’t have local sales monopolies. it’s a highly competitive market and I think it’s going to make sense therefore to have Tesla certified installers who can then install the solar glass roof. And I think that will be a very powerful driver of demand and allows to … to go much faster than we could otherwise grow.” – Elon Musk
Tesla Energy is often overlooked in the Tesla story because their car business grabs all of the attention, but their Energy business has the potential to grow as big or larger than their car business.
“Now that we feel that Model 3 production is in a good place and headed to a great place, we’ve restored resources to Tesla Solar and storage. And so that’s going to be, I think, the really crazy growth for as far into the future as I can imagine.”
Between the incredible growth we’re seeing in the energy storage options, the new rental storage package, and now the Solar Roof 3.0 being price competitive to a standard roof with solar panels, Tesla Energy is something to keep an eye on. I’ve said this in other videos, but Tesla is an energy company, not just a car company. Yes, they make amazing cars and are leading the charge on transitioning us to an EV future, but Tesla is looking big picture in a way that no other company is right now. They’re covering the entire sustainable energy ecosystem from generation, to storage, to use in things like transportation. And don’t think it’s going to stop there. Elon’s alluded to other products in the future, like in his Joe Rogan interview. A company that had to design it’s own super efficient air conditioning system for their EVs could end up spinning up a home heating and cooling line as well. That’s one of the biggest energy uses in all of our homes today … could be the big thing for Tesla to tackle next.