Consumer Edge Research

Tesla CEO Elon Musk Aims to Make Solar Panels as Appealing as Electric Cars

Cassanra Sweet and Tim Higgins, Wall Street Journal
Oct 28, 2016

Elon Musk wants to make solar-roof panels as sexy as his electric luxury cars.

Mr. Musk, who is chairman of both Tesla Motors Inc. and SolarCity Corp., laid out in broad strokes his vision for how his proposed merger of the two companies would result in an integrated system of solar panels, wall-mounted batteries and electric cars.

“People always think of Tesla as an electric-car company, but really the whole point of Tesla was to accelerate the advent of sustainable energy,” Mr. Musk said on a stage at Universal Studios in Los Angeles surrounded by houses outfitted with glass solar tiles roughly the size and shape of roofing shingles.

“The goal is…to make solar roofs that look better than a normal roof, generate electricity, last longer, have better insulation and an installed cost that is less than a normal roof plus the cost of electricity,” he said.

The audience greeted his words with cheers of encouragement, including an attendee who yelled, “Save us, Elon!”

Consumers equipped with the products of the combined companies could generate enough clean energy to help reduce global greenhouse gases, he said, and score points with neighbors.

“The key is really to make solar something desirable where if you install a solar roof on your house, you’re really proud, you want to put it on the most prominent part of the house, you want to call your neighbors over and say, ‘Check out the sweet roof,’” Mr. Musk said.

The new product comes as Mr. Musk works to persuade shareholders to approve Tesla’s proposed $2.2 billion acquisition of SolarCity.

He is expected to disclose his expectations for the combined company’s financials on Tuesday.

Unlike conventional solar panels, in which photovoltaic cells are assembled into a rectangular glass frame that is installed onto the roof of a building, Tesla and SolarCity have developed glass roofing tiles that are embedded with the devices that convert sunlight into electricity.

SolarCity, which is the largest U.S. home-solar-panel installer, would likely target the products at homeowners. Mr. Musk didn’t provide details as to how, exactly, each company would contribute to the venture.

Tesla plans to make four different glass roof tiles: an American-style textured glass tile; another that resembles a French slate roof; a third that has a smooth, contemporary look; and a Tuscan tile that resembles Italian terra-cotta roofing materials.

SolarCity has said it plans to start making solar products next summer at a factory in Buffalo, N.Y. Mr. Musk didn’t say how much the solar tiles would cost.

Mr. Musk said Tesla’s newest generation home battery, called the Powerwall 2, would cost $5,500, and could store and provide 14 kilowatt-hours of electricity, enough to power a four-bedroom home for a day. The earlier model had about half that capacity.

Tesla and SolarCity are unprofitable, and SolarCity is low on cash and in a different industry, which has led some analysts and investors to question the combination. Mr. Musk, however, has pitched the merger as part of a “master plan” to build a company that makes clean transportation and energy products aimed at helping the world transition to a low-carbon economy. Shareholders on both sides of the transaction are scheduled to vote on the merger on Nov. 17.

Tesla reported a surprise third-quarter profit on Wednesday, helped by record auto sales and efforts to make its operations more cost-effective. Mr. Musk said the company didn’t need to raise cash this quarter and that he could bring to market the Model 3 midprice electric car next year without raising additional funds, though he suggested it might be prudent to do so. He is depending upon demand for the $35,000 sedan to help boost production to 500,000 vehicles in 2018 from about 50,000 last year, generating cash to help fuel his ambition to promote electricity over fossil fuels.

Mr. Musk has been building a case for the merger as part of his long-term vision for Tesla. He aims to transform the 13-year-old company from a niche maker of luxury cars into a vertically integrated transportation company that helps customers generate solar power, store it and use it to fuel vehicles that eventually will drive themselves—and pay for themselves through a proprietary car-sharing network.

SolarCity, for its part, sells solar panels primarily to homeowners, although it also markets to commercial property owners. In addition to the panels, the San Mateo, Calif., company sells and installs batteries, made by Tesla, that connect to the panels as a way to store excess power at homes and office buildings.

Tesla sells its stationary energy-storage batteries to other installers too, for an array of applications.

The companies plan to manufacture solar panels in a Buffalo, N.Y., factory that is financed partly by state taxpayers. New York state has spent about $480 million to construct the facility and another $120 million on manufacturing equipment, said a spokesman at Empire State Development, the state agency overseeing the project.

SolarCity, in return for government assistance, has promised to spend $5 billion in New York over 10 years and create 500 jobs in Buffalo, plus thousands of positions elsewhere in the state.

Tesla has agreed with Panasonic Corp. to make its own panels at the factory, which SolarCity would then install on the roofs of homes and possibly commercial buildings.

Some analysts are skeptical that Tesla and SolarCity can kick-start a new business for the solar-roofing product that would significantly boost revenue.

“It’s hard enough to be a successful auto company without commingling the risks related to solar-panel adoption simultaneously,” said Jamie Albertine, an analyst at Consumer Edge Research LLC.

The combined Tesla-SolarCity would face a slowing consumer market for solar panels, as well as falling prices.

U.S. residential solar panel installations are likely to grow 23% this year and 17% to 18% in 2017, according to forecasts by clean-energy research firm GTM Research. That compares to 66% growth in 2015 over the previous year. The growth rate is slowing as the market matures in California, where about half the nation’s home panels are installed, and installers are finding it more expensive to reach the next wave of homeowners, said Shayle Kann, GTM’s vice president of research.

“This is a market that has historically, through 2015, been growing at more than 50% a year, and it is not doing that this year and won’t do that anymore,” he said. “It’s reverting back to more incremental, but hopefully sustainable, growth.”

Wholesale prices for high-quality Chinese panels have fallen to an average of less than 40 cents a watt, from 55 cents a watt earlier this year, according to analysts at Deutsche Bank AG.

Cash-strapped SolarCity has said it is working to cut its costs and shore up its balance sheet. The company spent $751 million in 2015 on sales, administrative and research costs, 88% more than its annual revenue of $400 million and the $399 million it spent the previous year. This year through June, the company spent $438 million, 42% more than its revenue of $308 million. The company had $146 million in cash, as of June 30, compared with $421 million of cash it had a year earlier.

SolarCity raised $305 million in September through a cash equity transaction with Quantum Strategic Partners Ltd., the hedge fund of billionaire investor George Soros. It sold $100 million of bonds last August to Mr. Musk, SolarCity Chief Executive Lyndon Rive and SolarCity Chief Technology Officer Peter Rive.

http://www.wsj.com/articles/tesla-ceo-elon-musk-aims-to-make-solar-panels-as-appealing-as-electric-cars-1477705988