Back in August 2016, just days after Elon Musk revealed his plans to merge Tesla (NASDAQ:TSLA) with SolarCity, he followed up with the announcement of a planned product that would supposedly revolutionize not just solar energy but the whole roofing industry: the solar roof. The promise was that it would look and perform better than traditional roofing materials, and produce energy as well. That combination was intended to make the solar roof a no-brainer purchase for millions of American homeowners.
The problem was, Tesla never managed to manufacture or install the solar roof efficiently. It quietly developed a version 2.0 (which was never officially announced) and kept saying it was making progress, but it never sold enough of them to make a real impact on the solar market.
On Friday, Musk announced Solar Roof 3.0 and is promising to install 1,000 roofs per week. Should we believe him this time?
Tesla's core solar problem
In the years since Tesla bought SolarCity, it has actually been shutting down the solar business. It has laid off salespeople and installers, and shifted to an online sales model that has shown no sign of success. Quarterly installations have dropped from 258 megawatts (MW) at their peak to 43 MW in the third quarter -- though that was up from the second-quarter 2019 nadir of 29 MW.
In short, Tesla's solar infrastructure is now a shell of its former self. It no longer has thousands of installers with the expertise to install solar roofs, nor does it have the boots-on-the-ground sales staff to sell them.
Musk has yet to explain how the business will function in the highly competitive solar industry. Thus far, we've seen nothing but a decline in Tesla Solar, so whatever investments the company makes in training staff to install a complex new product aren't guaranteed to result in sales success. Musk has indicated that he's open to working with outside partners to install the solar roof, but hasn't signed any up yet.
Nor should we forget that neither of the previous iterations of the solar roof product succeeded in the market -- so there's a reason to be skeptical about this one.
Ready for prime time?
As Tesla begins to sell the Solar Roof 3.0, it won't be shocking if some homeowners feel a bit hesitant about turning their personal safety over to Tesla. Musk has made clear that a solar roof replaces the existing roof, rather than sitting on top of it. That means Tesla's electronics will be integrated with the home, and in particular the wooden roof substructure.
That's notable because Walmart is suing Tesla for gross negligence over fires at of its seven stores caused by its solar installations. Being associated with a fire hazard isn't good for Tesla's image, especially when it's launching a new product.
Given how fast Tesla is moving, it's also hard to imagine that it has done more than a few months of real-world testing, and it hasn't gotten any outside installers certified to install the solar roof safely. The company is asking customers to make a multidecade investment in a roofing product that has little testing behind it after two previous versions of the same product have failed to catch on and the same time that more traditional solar installations are catching fire (a problem other installers haven't faced). That's a tough pitch to make.
Musk's solar "prove it" moment
Once, the idea was that solar energy would be one of the pillars for Tesla's renewable energy business. Instead, the company's footprint in the space has been shrinking, and its efforts in both solar panels and the solar roof have been disappointments. Musk promises that this time will be different, and I hope he's right given how impressive looking the solar roof is. But before investors accept that the solar business can finally be a real money maker for Tesla, he's going to have to prove it.