Why Tesla Solar Hasn’t Worked Out The Way Elon Musk Promised
Five years ago, Elon Musk unveiled one of his grand visions. We really need to make solar panels as appealing as electric cars have become. The goal is to make solar roofs that look better than a normal roof, generate electricity, last longer, have better insulation and actually have an installed cost that is less than a normal roof plus the cost of electricity. Why would you buy anything else? Just a few months prior to this event, Tesla announced its plans to combine with SolarCity. To fans, it seemed like his vision was coming to life.
The whole purpose of Tesla was to accelerate the advent of sustainable energy. But since then, Tesla's solar business has been riddled with controversy, lawsuits and struggles with installation and customer service. Not one step of this process has gone smoothly yet. I don't think I would do this at all if I could go back. The most frustrating part is that you just can't get a hold of anybody.
Every single person that we spoke to throughout our experience seems very well aware of how disorganized this operation is running. I spent $60,000 on your system and it doesn't work, and no one can help me and your app is blocking me from getting any support. Love the cars. Solar is not ready yet. Tesla getting into solar has been great for their narrative, the clean energy mission, but operationally it has been an albatross around their neck. CNBC spoke with several Tesla solar customers. I could not imagine buying another house without this.
It is crazy to know that my car is being completely charged, literally off the sun. I want everybody to have solar and battery walls on their house. Please, Uncle Elon, we love you, man. Please, get this right.
But five years in, Musk has yet to deliver on the promise of scaling the solar business or making the Solar Roof a dominant product. Most of the installs being done today are still traditional solar panels. We're spending a lot of time just validating the Solar Roof because they need to last at least 30 years, ideally longer. This is going to be a very big product. The challenge is really how to make it commercially producible and add a reasonable cost. Tesla's foray into solar began with SolarCity, a startup founded in 2006 by Elon Musk's cousins and backed by Musk, who served as chairman of the board.
SolarCity was one of the first major companies to really come onto the scene for residential solar in the United States. And at their height in 2015, Solarcity was installing about one-third of the entire residential solar market. But when Tesla bought SolarCity for $2.6 billion in 2016, the company was struggling financially. It was expensive to be a market leader in 2010. SolarCity acted as a financer and an installation manager for facilitating people getting solar panels installed on their home. They ran out of cash to fund their growth because at its core, SolarCity was lending money at rates lower than they could get in the market to fund themselves.
A well-known critic, who goes by the handle TeslaCharts, is a solar industry expert and skeptic of Tesla's solar efforts. He asked to remain anonymous to shield himself from harassment. I became skeptical of Tesla in that very moment when I saw him holding up those tiles that I knew were fake. Since Musk was a majority shareholder and chairman of the board at both SolarCity and Tesla, the deal raised suspicions When Tesla moved to acquire SolarCity, the business was starting to hit some serious trouble.
Had SolarCity actually gone bankrupt, it would have created problems for Tesla and SpaceX, which still needed lots of capital for growth. Elon had worked to take money out of SpaceX and to buy SolarCity bonds with it, which was part of the bridge that allowed SolarCity to stay solvent until Tesla could buy the company and then pay back those loans to SpaceX. Bailing out SolarCity in the long run was a net positive for Tesla because it would have averted the collapse of SolarCity and a likely collapse of SpaceX. The years following the merger, Tesla was thinly stretched, going through production hell with the Model 3. We had to devote the whole company to Model 3 production.
We had to basically take the whole company and people that were on solar and have them work on cars. Tesla did move some solar employees to make cars and batteries, but the company also fired many, and they moved people who were doing new installations to teams working on remediation and repairs. In the fourth quarter of 2017, Tesla reported a 43 percent drop in solar deployments compared to when it purchased SolarCity. And in the years that followed, it only continued to decline. They ended up losing their market-leading position to Sunrun in 2018.
I think they're currently hovering around two percent of the residential solar market. Solar deployments have increased in recent months. In the first two quarters of 2021, Tesla installed 92 megawatts and 85 megawatts, respectively, but this is barely half of what SolarCity was deploying around the time of acquisition. Tesla said its energy business brought in $801 million in revenue in Q2 of 2021. But because Tesla combines its battery and solar businesses, it's challenging to get a clear picture of how solar is actually doing.
Much of Tesla's energy growth is due to its energy storage deployments, which the company said grew 83 percent from 2019 to 2020. We have a significant unmet demand in stationary storage. Megapack is basically sold out through the end of next year, I believe. If Tesla's solar installs were very profitable, I think they would be quite keen to report that.
One thing that Tesla inherited with the SolarCity deal was this plant in Buffalo where SolarCity was supposed to begin producing photovoltaics domestically. The state effectively built a factory for SolarCity for free in return for a commitment around jobs and productivity out of that factory. Buffalo was to become sort of the Gigafactory of solar panel production.
We expect the Buffalo Gigafactory to be a powerhouse of solar panel and solar glass tile output. It is going to be a kick-ass facility. We made that commitment to the state of New York. We are going to keep that commitment.
The factory, built in 2014, was locked into a deal with New York to employ at least 1,460 people in high-tech jobs. Unless they secure an extension, Tesla has until the end of the year to fulfill its headcount and other commitments in the state. If they do not, they could face fines of tens of millions of dollars. It hasn't been what was imagined at the outset. The state of New York had to write down about a billion dollars from their investments. Since taking over the factory, Tesla has yet to fully realize it as a solar manufacturing hub.
The company was working with Panasonic to produce solar cells, but that fell through last year. And there's evidence that some of the manufacturing may actually be taking place in China. The Buffalo Gigafactory for solar production is not running at 100 percent utilization rate. We've seen pictures, labels on the current version of the Solar Roof tiles come from China. They may find their way through Buffalo for some subassembly, but the vast majority of the world's solar technology is still emanating out of China. Solar manufacturing is very, very hard.
It's a commoditized product, its race to the bottom, margins are very thin. The houses you see around you are all solar houses. I don't know if you know that. Did you notice? The Solar Roof got a lot of hype. But the product unveiled that day was a non-functioning prototype that Tesla was still working to figure out.
They didn't know how to build them at the time. They weren't producing them. They didn't even have a production prototype.
Savvy people in solar knew this didn't look right. One of those industry experts was TeslaCharts, who had been working on a similar product for years but was ultimately abandoned because it wasn't economically viable. Elon addressed none of the serious problems that the industry knew had existed for the better part of a decade. We haven't seen mass produced Tesla Solar Roof just yet. Solar shingle is very, very hard to produce and to the aesthetic level that Elon Musk is envisioning, that is just like further increasing the difficulty.
Elon Musk has admitted on earnings calls and in other media appearances that we underestimated how much we had to customize the installation of these systems. Instead of sending its own teams, Tesla has been increasingly working with third-party roofing specialists to install Solar Roof tiles. We just got a phone call one day and it was somebody from Tesla, and they had done a lot of research on us already.
McConaghy is part owner of Three Tree Roofing, a Tesla-certified Solar Roof installer in the Seattle area. It started working with Tesla in December, and since offering the roof, customer interest has been high. We do get several inquiries a day looking specifically for a Tesla Solar Roof.
Installing the Solar Roof is considerably more challenging than traditional panels because every roof is unique and the wiring and connectors are complex. We draw every roof face and send them those drawings, and then two weeks or so turnaround time they can fire back a phase two plan. It's like an adult Lego set.
Due to the specialized labor, long installation times and high shipping costs, the roof gets expensive. If we were to do a composition roof, if that roof was to take three days, installing the Tesla Solar Roof probably closer to eight days. There's just a lot more moving pieces and then the logistics side of it, getting all of this stuff to the job site. In 2018, CNBC met with one of the first Tesla Solar Roof customers. It was $100,000 with the roof and three batteries, which I got a little sticker shock from.
But when I did the math, with a traditional roof and traditional solar panels and batteries, it was about $70,000. And then also you get a rebate from the state, so it actually became a wash at the end of the day. Earlier this year, Tesla stunned customers who had already ordered solar rooftops by retroactively changing their terms and prices before installation took place. The difference in realistic cost versus what they were quoted online, that's been the biggest speed bump with all of our new customers. Most of the time, it's about half of what the actual cost would be.
Demand for the Solar Roof remains strong, so despite raising the price, the demand is still significantly in excess of our ability to meet the demand to install the Solar Roofs. There have been proposed class-action lawsuits, but it's definitely rankled customers that there was a sudden price change. After they already started doing work on their homes to make way for their solar rooftops. Tesla told customer's attorneys that they're starting a refund program for those unexpectedly hit by the price hikes.
But while Tesla's Solar Roof tiles get the most attention, they're a tiny portion of Tesla's overall solar deployments. There is a few hundred of these systems installed in California and then a smattering across the country. But the vast, vast majority of what they're installing in the market today is traditional solar, not the solar tile roof.
CNBC spoke to several Tesla solar customers who chose to go with its traditional panels. We went to Semper Solaris and a couple of other companies for bids, but Tesla was the least expensive, by a lot. Tesla's price was significantly below the other companies, which is one of the big reasons I went with them. So the total cost is $37,000. About half of that is just the panels, and then the other half is really the Powerwalls.
In Northern California, the regional utility company PG&E has been conducting intermittent blackouts. For John Stringer, who is president of the Silicon Valley Tesla Owners Club, this was the final push that sold him on solar. Last year alone, I had almost probably like five to seven days where there was no power.
Stringer opted for an eight-kilowatt solar array, about 24 panels, and two Powerwalls, which can power his home for up to two days. The whole process took about a year, with Tesla initially telling him they couldn't install on his foam roof, but since then he's been pleased with his results. They really teamed up with my roofer to specifically design something for this roof. Customers can monitor their energy generation and consumption within the Tesla app.
It'll show you how much of the grid you've used in the day by hour, and it will also show you like how much your Powerwalls have powered the house, along with how much the sun has powered your house. The app also allows customers to schedule service appointments, but there are few critical bugs that haven't been worked out. Derek, who asked to remain anonymous for privacy, says he's unable to access the schedule service menu, a key step in Tesla's process for booking service appointments.
When you go into your app, you hit service. It gives you some options. If you're on the car, it will only give you car options. If you're on the solar panel and the batteries. There is no service option that you can select. Despite raising this issue with customer service and being assured they'd directly book his appointment, he was ultimately back at square one.
I took screenshots of the flow and emailed them to them and pointed out the exact scenario where the user would get trapped, but that went nowhere. Some Tesla solar customers have encountered issues during the installation process. She has a Model 3 in the garage.
We are huge believers in getting solar, getting battery walls, going green. When Georgia and Spencer Mills moved into a new home in Oakland, they decided to get solar when redoing their roof. Before we replaced it. We were like, hey, we're going to get solar, let's call Tesla and make sure we do it right. But when Tesla's team showed up to work, there were a few surprises. 14 months into the process, the first install team actually showed up and they aborted.
They got here and they basically said, Well, we can't install on this roof. You told us to build it this way. So we did.
Eventually, Tesla was able to install solar, but they said the process was disorganized and resulted in damage to their new roof. They were supposed to be able to just drill into our roof, bracket it, seal around it and call it a day with one small hole. Instead, we have these gigantic holes that had to be ripped out and cut out and then fully patched over. It's supposed to be a 30-year roof, and now it's a 10-year roof, after they had to basically massacre it to install all the bracketing When it came time to install their Powerwalls the experience wasn't any better. They had somebody else's pictures from somebody else's account on our account, which messed up their whole design. Once the install is complete, Tesla says it will take between four to six weeks before the system can be switched on. But this didn't happen for the mills, and when Spencer called, he couldn't get through
Nine weeks in, I just said to heck with it and I called the number and I let it sit on my table on hold for hours and eventually somebody picked up. She told us on the phone, well, everybody that you've worked with on your project has either been relocated within the company, has left the company or is no longer with the company. Customer service has been a pain point for Tesla's vehicles in the past, and with solar, things seem to be the same. Like the Mills, when Matt Malinofsky didn't hear back from Tesla within four to six weeks after installation, he tried reaching out. There was someone listed on my account by the name of Michael, who was supposedly my project advisor. I think I only got through to him once out of eight phone calls and every other time a different project advisor answered.
No one would tell me anything. All they said was, No, it's not done yet. You have to wait. Matt was finally able to get his system turned on, but now he says it's underperforming.
After three plus months of waiting to turn my system on, I turn it on. It's not working and I have to wait another month and a half to get it looked at. He also paid out of pocket to fix a water heater sensor that was damaged during install. They're acknowledging that it happened, but they're just giving me empty words.
Nothing concrete has been done to address the problem. Derek also ran into delays after getting solar installed. I got into Tesla Solar because I got into Tesla cars.
After waiting ten weeks with no word from Tesla or the city, he called for an update. After a couple of phone calls, I talked to an agent and they're like, Oh this, they just forgot to flip a bit in the software. And I'm like, You mean I've had this stuff on my house, you've had my money, and I could have been getting energy from the sun and somebody just didn't fill out some process to flip some bit. He was finally able to get his solar turned on, only to discover the panels weren't delivering any power.
I started to reach out to other companies like Nphase that make other inverters. Can you come? Can you swap out my system? Can you work into your panels? Five months after installation, he was still trying to resolve his issues. While Tesla says they monitor systems remotely and will alert customers if problems occur, he doesn't trust them to do so. I do feel like the responsibility to make sure that everything is operating is on my shoulders.
Customer complaints around solar have become such an issue for Tesla that they reportedly have a dedicated team that seeks to silence negative posts on social media. A barrage of lawsuits followed Tesla's foray into the solar business. The shareholders that are upset about the deal, they did what is called a shareholder derivative action where they've said that basically, Elon Musk should pay the company back. In July, Elon Musk went before a Delaware court to defend the SolarCity deal, but a verdict has not yet been reached. Tesla has also run into problems with fires on rooftops it built for commercial and residential solar customers. Customers were suing over problems with their rooftops and billing.
And one employee sued Tesla, saying the company retaliated against him and let him go after he raised fire safety concerns about the rooftops. Walmart suing Tesla, claiming that the solar panels on top of the roofs of seven stores have caught fire, asking for them to pay damages and also asking them to remove the solar panels from all 240 locations where they have been installed. With Walmart, they settled. They haven't revealed the settlement terms.
But if Tesla is able to address some of the fundamental problems with its solar products, it has the potential to be big for the company. There's so much interest in the sort of owning an EV from Tesla, while you have a Solar Roof from Tesla and the Tesla app and the Powerwall altogether, that may help Tesla rehabilitate the solar piece of their energy business. Having a national champion is definitely a good thing for the solar industry, especially given Tesla's success in electric cars. If they can pull off the Tesla Solar Roof and consistently install hundreds of megawatts every year of their own Solar Roof, that will be pretty successful. There are a lot of stars aligning for this market in terms of just globally a renewed focus on ESG investing. Just in the last 18 months, just the amount of capital and companies that have gone public in the renewable
energy space probably is more than what's happened in the last 10 years or even the last 20 years. Overall, demand for solar is growing. The U.S. solar industry is on track to quadruple by 2030.
Bloomberg New Energy estimates they're looking at solar capacity globally, growing almost 8x in just the next 10 years. The wind is under Tesla's sails in one sense. Around the world there's a ton of tax breaks and incentives for homeowners to either retroactively install solar or when they're building anew. But nearly five years after the acquisition, it seems Tesla is still trying to find its stride. Tesla dismissed a number of solar executives in April, including in Buffalo. They just they haven't seen the improvements and the growth they wanted While it has been installing more Solar Roofs, the recent price increases make it too costly for most customers.
You could have always ordered a solar roof from somebody and paid an arm and a leg to have it installed on your home in an utterly uneconomic decision. Until there's verifiable proof that these roofs are economically sensible, then no, the problem is not solved. I do think that the Tesla Solar Roof is definitely going to stay in the market. I think it has a strong foothold.
There's a little bit of a bad taste maybe in people's minds with some of the things they're hearing. But I think they're only getting better, and I think that it'll only get more price competitive. While these problems are not unique to Tesla, the company will need to address their installation quality and customer service issues. If they want to matter in solar like they have in automotive, they've got to make it a universally happier experience for customers. You're spending tens of thousands of dollars.
It should almost be a concierge service of follow-up to ensure that everything has gone well throughout the whole system. But despite the issues, many are still rooting for Tesla. The vision of Tesla, which is essentially sustainable energy and a sustainable future. There's just so much freedom in literally having solar, whether you get Tesla or any other solar system.
I would like to see this company successful. I would like to see solar widespread and successful. Because if everybody has an experience like me and they tell 20 people, it will crush this industry when it's very important that it is successful.