Author: Ivan Penn and Peter Eavis Published: April 30, 2019 The New York Times
A solar panel on display at the Tesla store in Westfield Century City in Los Angeles. Tesla plans to require customers to order panels online.CreditCreditRozette Rago for The New York Times
Tesla, which lost its status as the nation’s leading rooftop solar company last year, says it has figured out how to get back in the game — by slashing prices.
The company plans to announce on Tuesday that it has started selling solar panels and related equipment for up to 38 percent less than the national average price by standardizing systems and requiring customers to order them online. Tesla executives said these changes should put to rest concerns that the company, better known for its luxury electric cars, has neglected its residential solar business.
But it is not clear whether the strategy will work or is even feasible. Tesla and its chief executive, Elon Musk, have struggled to deliver products on time that they announced with great fanfare, including a $35,000 version of its Model 3 electric sedan. The company has also struggled with quality problems.
Last week, Tesla reported a $702 million loss in the first quarter as deliveries of cars and solar systems tumbled. The company’s stock price is down by more than 27 percent so far this year, and many analysts believe it will soon need to raise money by selling shares or bonds because its cash holdings dropped by about $1.5 billion in the first three months of the year.
The solar industry is known for intense competition and low profit margins. In the first three months of the year, Tesla fell to third place behind Sunrun and Vivint Solar in installations, according to Wood Mackenzie, a research and consulting firm.
Sanjay Shah, who runs Tesla’s solar business and previously worked at Dell and Amazon, said solar companies, his included, have struggled to make money because they have made buying solar panels too complex. Most installers develop and sell solar systems that are customized for each home.
“We spent hours and hours and days and days on the process,” Mr. Shah said. “It adds cost. It adds time. We needed to have a very streamlined process.”
He said Tesla would now offer systems only in increments of 4 kilowatts, a measure of how much electricity the panels can generate in ideal conditions, or 12 panels. The average system in the United States can generate about 7.6 kilowatts.
To further reduce costs and complexity, customers will be asked to do many of the tasks Tesla employees used to do. Homeowners will photograph electric meters, circuit breaker boxes and other equipment and send the images to the company, reducing the need for site visits.
As a result of these changes, Mr. Shah said Tesla customers could expect to pay $1.75 to $1.99 per watt, depending on where they live. The average residential solar customer pays $2.85 per watt, including $1 for permitting and inspections, according to the Solar Energy Industries Association.
Workers installed photovoltaic panels on the roof of a house in San Leandro, Calif., for SolarCity in 2013. Tesla acquired SolarCity in 2016.CreditThor Swift for The New York Times
“It’s not sexy to talk about, but soft costs are kind of the biggest barrier to getting the next level of costs down,” said Bernadette Del Chiaro, executive director of the California Solar and Storage Association. “If they’ve come up with some new ways to lower soft costs, that would be a game changer.”
Allison Mond, a senior analyst at Wood Mackenzie, said most solar companies had been automating tasks like using online digital images to assess customers’ roofs, but Tesla’s new approach had the potential to reduce labor costs substantially more than what other companies had achieved.
Mr. Musk pushed Tesla into the solar business by acquiring SolarCity in November 2016, arguing that it would fit naturally into the company’s mission of providing sustainable transportation and energy. Some investors said Tesla was paying too much for SolarCity, which was founded by two of Mr. Musk’s cousins.
Since the acquisition closed, Tesla has struggled to expand the solar business or even figure out its strategy. In February 2018, the company said it would sell panels in 800 Home Depot stores. But in June of that year, Tesla said it was ending that partnership because it wanted to sell solar systems online and in its own stores.
Mr. Musk also promised to replace the boxy solar panels with solar shingles that look like ordinary roofing materials but can generate electricity. More than two years since he made that announcement in late 2016, Tesla has mostly taken reservations for that product.
Mr. Shah said the company hoped to push sales of those shingles, which Tesla calls a “solar roof,” in the second half of this year.
Tesla’s struggles with the solar business mirror its larger financial problems. After weak car sales caused the company to lose money in the first quarter, the company said it did not expect to turn a profit until the third quarter of this year. In January, Mr. Musk said that he was “optimistic” that the company would be profitable every quarter.
The company has said its financial results would improve this year as it overcomes the logistical problems of getting cars to Europe and China. But Tesla’s large first-quarter loss has revived concerns among investors that the company is not making enough money to finance its operations and expand.
Tesla’s solar business had a particularly bleak first quarter during which revenue plunged 21 percent compared with the same period a year earlier. The division’s gross profit was just 2.4 percent of revenue, down from 8.5 percent a year earlier. The company said the changes it was making to its solar business should help revive sales and profits.
Tesla produces solar products at a factory in Buffalo. As part of a pact with New York State that included significant subsidies, Tesla has to comply with certain hiring and investment requirements. In a financial filing on Monday, Tesla said it expected to meet those targets on time, but added that failure to do so could obligate the company to pay “significant amounts” to the state.
Mr. Shah said he was optimistic about Tesla’s chances, pointing out that just two million homes nationally, or about 3 percent of the total, have solar panels today. More people will adopt solar energy as they realize that the panels pay for themselves over time in the form of lower electricity bills and sales of electricity to local utilities.
“It’s practically a money-printing machine on their roofs,” Mr. Shah said.