Whether he intended to or not, SolarCity Corp. (NASDAQ:SCTY.DL) Chairman Elon Musk dropped a bomb on investors during this week's earnings conference call. SolarCity is going to get into the business of solar roofs. Not just solar panels, as we've known they are developing, but roofs themselves.
Here's what he said directly:
And I'd just like to emphasize, I think, this is really a fundamental part of achieving a differentiated product strategy where you have a -- it's not a beautiful roof, that it is a solar roof, it's not a thing on a roof, it is the roof.
What SolarCity's solar roof could be
Elon Musk didn't reveal what the solar roof would be, only that it would be an integrated roof product. This would be sold to builders of new homes as well as for roof replacements. CEO Lyndon Rive said the product would focus on selling to installers of the 5 million new roofs put in each year in the U.S.
What exactly that means is a bit of a mystery. Remember, SolarCity's Silevo technology is built with silicon, which is fairly fragile, and isn't the kind of roof product people can be walking on. The entire system would have to be redesigned with solar cells sitting on top of a sturdier substrate. And that could bring up even more problems than are worth dealing with, which I'll get to below.
The history of solar roofs
SolarCity isn't the first company to think of integrating solar into a roof. You may remember Energy Conversion Devices (which filed for bankruptcy in February 2012) or Dow Chemical's Powerhouse Solar Shingle (shut down earlier this year) as highly hyped solar-shingle products that ultimately failed. These were more shingle replacements than attempts to rethink the roof itself, but they show how tough the business has been.
Integrating solar into the roof is a great idea, but there are more challenges than just making the product work, which is hard enough.
Making a solar roof is only half the battle
What shouldn't be overlooked is the challenge SolarCity could have financing and insuring a new solar roof design. Financing is a key to any solar energy system, and banks or other investors want a "bankable" product before they're willing to invest in it. That means a history of proven energy production and reliability. The system can't break when a hailstorm comes through, or cause a leak that ruins someone's living room. Getting to the "bankable" point took the solar industry many years, so don't think investors will rush out to finance a new product just because it comes from SolarCity.
The other thing to think about is insurance. Roof designs haven't changed much in decades -- and now Elon Musk wants to change roofs altogether? What is your home insurer going to say about that? Like banks, insurers want proven reliability and don't want to take risks on new products. Musk has to convince them that SolarCity's solar roof won't cost them millions in claims after a few storms or fallen tree branches.
Solar roofs are a big unknown in solar
If Elon Musk and SolarCity can design a solar roof that's elegant, reliable, and financeable, it'll be a huge win for the company. But there are companies which have thought they'd answered the solar roof question before, only to fail when they hit the market.
It's worth being skeptical of SolarCity's solar roof, because we haven't even seen that the company can make solar modules on a large scale. First things first in the solar industry, and, as usual, I would like to see SolarCity "prove it" before I believe this will transform the solar industry. And so far, SolarCity hasn't even completed its manufacturing plant, so there's a lot left to prove.