Let's be honest. Tesla (NASDAQ:TSLA) isn't really an energy company; it's an auto manufacturer through and through. Sure, it makes batteries that are sometimes sold to utilities to store energy, but 95% of Tesla's revenue is automotive and services revenue. Just 5% is energy generation and storage.
There was once an idea that Tesla would revolutionize energy as we know it. When Elon Musk pitched investors on the idea of buying SolarCity, it was with the idea of building an integrated energy company. People would buy an electric vehicle and then be enticed to add a solar roof and energy storage to move toward energy independence. Now, SolarCity as an installation company is a shell of its former self; solar roof reservations are being cancelled; and Tesla doesn't offer anything in energy storage that a dozen other companies can't match.
The solar roof dream is dying
Tesla's solar roof was announced nearly four years ago to wide praise by excited investors. But when I talked to industry experts and executives about the solar roof at the time, there were a lot of confused responses. Thin-film solar shingles had been tried over the years but generated very little energy and simply weren't worth the cost. Shingles using crystalline cells like Tesla said it could make had been experimented with, but there were problems like heat and cost that couldn't be overcome by even the most experienced solar manufacturers. Experts weren't ready to count Elon Musk out, but they weren't certain how he had overcome these challenges before ever producing solar panels at mass scale.
It turns out the solar roof was little more than a prototype when it was announced and was never installed on many homes, despite taking customer deposits for nearly 4 years. Experts were right. Tesla hadn't somehow cracked the solar-shingle concept. Now, the company is returning deposits that it started taking as long as three years ago.
At the same time, Tesla's solar-manufacturing plant in Buffalo, New York has failed to mass-produce solar panels using SolarCity's technology, as promised. It's still not 100% clear what is being produced at the Buffalo plant and how many employees Tesla has versus Panasonic, which is planning to exit the plant this year. According to Tesla's quarterly report, it says that panels are being manufactured, but reports from other news outlets suggest otherwise.
The solar business that Tesla has left is installing third-party solar panels, just like other solar installers. And most installers have developed their own battery-storage systems, foregoing the energy storage unit known as the Powerwall for their own products. At least in the home, Tesla's integrated energy vision has fallen apart.
SolarCity lawsuits continue
The solar roof's failures come at a tough time for Elon Musk and Tesla, who are fighting with lawsuits over the SolarCity deal. The Board of Directors settled a lawsuit over the SolarCity deal for $60 million earlier this year, paid for by insurance, but Musk is still fighting. If he loses, it could cost him over $1 billion in Tesla stock.
At the same time, Tesla has declined to purchase "directors and officers liability insurance," or D&O insurance, in order to protect them against lawsuits. Instead, Musk himself will offer the equivalent of insurance to directors.
Solar and energy storage aren't a reason to buy Tesla
Tesla still reports revenue from its energy business, but right now it's such a small portion of the business that it's not worth buying the stock over. In fact, if lawsuits related to the SolarCity acquisition continue and products coming from the highly subsidized Buffalo, NY factory continue to flop, the endeavor may cost more than it was worth. Tesla's energy dream isn't living up to expectations and with deposits being returned for the solar roof, investors shouldn't look for a recovery soon.