by Tom Randall
Tesla Motors Inc.’s bid to buy the biggest U.S. rooftop solar installer has little to do with selling cars. Rather, it’s about solving two of the biggest problems standing in the way of the next solar boom. And perhaps a good deal more.
When Chief Executive Officer Elon Musk came out last week with his $2.86 billion plan to acquire SolarCity Inc., it was almost universally derided as a risky financial move that threatens to derail the electric car maker at its most critical moment.
That’s undoubtedly true. But in the dozens of analyst notes and news stories that picked apart the deal, there’s been little attention paid to what we’ll call “Tesla Solar” and how it could transform the power sector. It’s actually a really big idea.
Solar Problem No. 1: It’s too complicated
Consider the average homeowner who might be vaguely interested in adding rooftop solar. Where does the process start?
Adding solar requires customers to sort through competing technologies and complex financing schemes with no household names to turn to. And then there’s the aesthetic impediment: Solar panels alter the look and value of one’s most important personal asset—the home. It’s a big leap of faith, even in regions where adding solar is an economic no-brainer.
This problem has dogged solar companies for years. Vivint Inc. has legions of door-to-door salesmen, while others have deployed mailers, robocalls, sports sponsorships, and internet search ads. None of it resonates all that much.
Musk, who turned 45 on Tuesday, wants to change this daunting transaction in the same way the Apple Store changed the way we buy consumer electronics. Fifteen years ago, Apple Computer Inc. (as it was known then) faced problems similar to those hobbling solar today. Buying a computer was a big investment: They were complicated, the benefits uncertain, and the choices undifferentiated. Sound familiar?
With the opening of the first Apple Stores, electronics shopping turned from exasperating to joyful. Consumers got to touch and play with the products and ask questions from no-pressure salespeople. Early critics said the stores had too few products and would never make money, but before long the stores themselves became a destination.
Tesla showrooms are cast from the same mold. At the new Tesla outpost in Brooklyn’s Red Hook neighborhood, customers sip free espresso and chat about cars. People go there to learn about electric vehicles often for the first time, and much of the experience is focused on education. Central to all of the showrooms is a stripped-down aluminum Tesla chassis, so customers can get a feel for how the battery and electric motors work. You can even take a test drive with the kids in a tricked-out $130,000 Model X SUV, and no one will ever ask if you want to buy a car, let alone haggle over prices and options if you do.
For solar companies, one of the biggest costs is making that initial connection. For every dollar SolarCity spends on marketing, it installs only an additional half-watt of solar power, according to Bloomberg New Energy Finance (BNEF). To put that in perspective, a typical rooftop solar system in the U.S. is rated at more than 5,000 watts.
This is the biggest reason rooftop solar costs almost twice as much at SolarCity ($3.20 per watt) as similar systems in Western Europe or Australia ($1.70 per watt), according to BNEF. Most people in the U.S. just ignore the expensive marketing anyway: A BNEF survey found that 40 percent of buyers were referred by a friend or family, and 28 percent instigated the purchase themselves.
Other retail companies have experimented with solar partnerships—including Home Depot Inc. and Ikea—but the strategy never really took off for these retail megastores. The solar industry is a product in need of an Apple Store, and Tesla happens to have hundreds of showrooms with very few products to sell. Critics of the SolarCity deal brushed aside the so-called synergy of selling cars and solar panels in the same location, but that may miss the point. Is a customer likely to walk in and buy both at the same time? No more likely than an Apple Store customer will buy an iPhone and a desktop Mac simultaneously.
Instead, what ties the cars-plus-solar Tesla store together is an implicit guarantee of good customer service and sophisticated technology that’s easy to use. That’s branding that can never quite come together so long as Tesla and SolarCity remain separate companies. But together, it just might expand the entire market for solar. A Tesla showroom finally answers that question asked by millions of homeowners: Where do I start?
Solar Problem No. 2: The sun goes down
Here’s where things get interesting. Tesla isn’t just a car company looking to buy a solar company. It’s also a battery company that wants to link its two biggest markets: energy supply (solar) with energy demand (electric cars). Cheap and efficient batteries are what make Tesla cars possible, and they have the potential to change the economics of solar, too.