Elon Musk, the creator of Tesla is a very smart and innovative man. A true modern-day pioneer. He has many fans and many detractors. Many times his ideas, comments, and companies come under fire and Wall Street as well as the public like to take their shots. So it would only make sense that they would be reveling in the latest news about his solar company SolarCity.
Back in early 2017 there were signs that all was not well at Tesla’s SolarCity subsidiary. After Musk closed on the purchase of the solar company, in the first quarter, the company reported a number of problems. Those problems included shrinking cash flow, lower-than-expected gross margin, and the need for cost-cutting.
A number of developments since then have brought the solar installer closer to its death. But it was the recent March 1, 2019 announcement that the company will close most of its stores may be the final nail in SolarCity’s coffin. Here’s why.
In the Beginning
In 2014, just five years ago, SolarCity was the top solar installer in the United States. SolarCity had a unique business model. Install a solar system on the home for free, but retain the system’s ownership and sell the electricity that it produces to the homeowner at a much lower rate than the local utility. This freed up the homeowner from the very high up-front installation costs, and allowed SolarCity to have a growing recurring revenue stream. Not such a bad idea, is it?
However, the price of solar panels and solar systems began to get cheaper and cheaper, which certainly didn’t do SolarCity’s sales model any favors. In early 2017, SolarCity, who on a side note was acquired by Tesla for $2.9 billion in stock and also assumed $2 billion of SolarCity’s debt, stopped selling their solar panels door-to-door, and later in the year lost its top installer crown to Sunrun.
Musk and Tesla tried a number of things to boost solar sales. Their biggest achievement in trying to get things going again was partnering with The Home Depot in February 2018 to sell SolarCity products in kiosks in about 800 of The Home Depot’s nearly 2,200 stores. But in an odd twist, Musk pulled the plug on that collaboration in June 2018. It had been just four months after it was launched at the stores. This was odd because The Home Depot reportedly accounted for nearly half of SolarCity sales.
Musk went on to explain that he wanted to “focus … on selling solar power in Tesla stores and online.”
A Complete Turnaround
In Tesla’s update letter in the fourth quarter of 2018, which was released on Jan. 30 of 2019, Elon was still envisioning Tesla’s stores as the primary sales point for the company’s SolarCity products.
“We are still in the process of transitioning our sales channel from former partners [read: Home Depot] to our Tesla stores and training our sales team to sell solar systems in addition to vehicles,” he wrote.
Just over a month later, Musk announced that Tesla would close most of its stores and, presumably, lay off most of that “sales team” in order to offer the long-awaited $35,000 version of the Model 3. According to Musk, offering sales only online and by phone would shave 6% off the cost of each vehicle.
By doing this, it would relegate Tesla’s website as the one and only source for its solar installation sales. Currently, the only opportunity to make a solar sale or develop a lead on the site is a “Request a Custom Quote” button on the energy page. It that takes you to a form collecting your name and contact info. Now, it is possible that this feature will one day become more detailed once those Tesla stores close and the company ramps up online sales in general, but from the looks of how things have gone so far, this may be a pipe dream.
It May Not Even Matter
Oddly enough, after looking it all over, I noticed that the name SolarCity is, for all intents and purposes, may no longer be used to market the product. It does not appear anywhere on Tesla’s website. The only exception is in the rarely searched archived press releases and reports. The company’s solar panel and solar roof installations, as well as its PowerWall and PowerPack energy storage units, are listed in financial statements as “Energy Generation and Storage,” and on the website as just “Energy.”
Surprisingly though, Tesla’s energy sales have actually been growing! Its revenue grew at a very impressive 39.3% in 2018, to $1.6 billion. Of course, that’s peanuts compared to the company’s $18.5 billion in 2018 automotive revenue, but it’s still solid growth.
The big reason these numbers are so positive has to give thanks to “a substantial growth in energy storage deployments,” according to Tesla’s fourth quarter 2018 update. This was to point out that it’s the energy storage part of the business, not the generating part that’s powering its growth.
What Does it All Mean
At the end of the day, Tesla’s primary focus is and always will be manufacturing cars. Solar energy is a great side venture. Tesla’s automotive division is responsible for a whopping 86.3% of company revenue, And while energy only contributes 7.2%. The rest of the listed revenue falls under “services and other”. It is unclear how much of that 7.2% comes from solar panel installation, but the primary growth segment for Tesla Energy is the energy storage, not solar generation. And that makes sense. It has always been about the storage of solar power energy that really drives and frequently hurts the market.
So even though the main avenue for solar system sales is about to be cut off, neither investors nor the market may even notice. They may not even care. In fact, it wouldn’t surprise many that follow the company closely, that Tesla quietly ends its solar installations altogether.
If solar energy is something that you and your family are considering than don’t hesitate to schedule a roofing consultation today with David Bange Roofing. DBR offers solar installation so that you may comfortably transition over to a more long-term cost-effective energy solution as well as greatly doing your part to cut back on fossil fuels and help the environment.