Tesla-SolarCity - Pushing The Boundaries Of Rooftop Solar

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About: Tesla, Inc. (TSLA), Includes: SPWR
by: Simple Investment Ideas
Summary

Tesla and SolarCity's new solar roof product could potentially be game changing for rooftop solar.

Despite the hype surrounding the solar roof, success on the sales front is still far from guaranteed.

Tesla and SolarCity are focusing on innovation in a push to make solar mainstream.

Tesla (NASDAQ:TSLA) and SolarCity (SCTY) recently showcased their new solar roof product in hopes of generating new consumer interest. While specifics regarding the solar roof product still remain relatively scarce, the product is clearly well-designed. Given Tesla's history of emphasizing design, it is not surprising to see the company introduce such an aesthetically pleasing product. If Tesla and SolarCity manage to price the solar roof product at reasonable levels, these companies could change how rooftop solar is sold.

SolarCity will work closely with Tesla on the solar roof product. As SolarCity is the largest rooftop solar company in the US, this product collaboration only makes sense. In fact, the solar roof product will likely be manufactured in Buffalo, the same location where SolarCity is manufacturing its high-efficiency modules. Despite the seemingly revolutionary nature of the solar roof product, this new product venture is still incredibly risky.

The solar roof is perhaps the most fully integrated rooftop solar product on the market.

Source: SolarCity

Consumer Interest

The appeal of the solar roof product is clear. Not only are the solar roof tiles able to generate electricity from the sun, but they are also arguably more aesthetically appealing than regular roof tiles. Moreover, the solar roof tiles are more durable and are better insulators than standard roof tiles. With up to 100 million new rooftops being installed around the world every year, the potential market for the solar roof is huge.

Although customers would likely pay a premium for such a product, this premium is still unknown given the unprecedented nature of this product. While there are somewhat similar products like solar shingles, they are nowhere near as well-developed as the solar roof. The solar roof will likely still have to be somewhat cost-comparable to regular rooftop solar products in order to attract sufficient consumer interest. However, there is a real possibility of customers paying a large premium for this product considering Tesla's brand power and ability to revolutionize technologies.

Tesla's solar roof presentation left out the details surrounding product pricing. Without the price of the solar roof product, there is no way to gauge how successful the product will be. The presentation and subsequent omission of such crucial product details is somewhat unusual. In fact, some are interpreting this as Tesla/SolarCity's attempt to push the Tesla-SolarCity acquisition.

Until more information about the solar roof is released, it will be extremely hard to assess the product. Given Tesla's track record, however, the solar roof product will likely popular in at least some markets. Whether or not this product will garner mainstream attention is still uncertain. Solar manufacturing is already an extremely tough industry. Integrating solar directly into the rooftop will only make the solar manufacturing process even more difficult.

Product Differentiation

If Tesla and SolarCity are able to popularize their new solar roof product, they will have a massive advantage over their competitors. Currently, rooftop solar products from different companies are more or less the same. Aside from differences in modules, inverters, etc., there are no significant variations between rooftop solar products. As such, price is currently one of the largest differentiators in the rooftop solar industry.

By offering a highly unique solar solution to the market, Tesla and SolarCity are attempting to differentiate themselves from a sea of other rooftop solar competitors. With large solar manufacturers like SunPower (NASDAQ:SPWR) starting to come out with innovative products like fully integrated rooftop solar solutions, Tesla and SolarCity will need to be more creative to truly set themselves apart. The solar roof could very well be the product that pushes Tesla and SolarCity ahead in the increasingly competitive rooftop solar industry.

Big Risk

SolarCity is currently under an immense amount of pressure to perform. The company has severely underwhelmed investors on the growth and cost fronts over the past few quarters. If Tesla's attempt to revitalize SolarCity with the solar roof product does not pan out, there will be even more doubt in SolarCity's ability to succeed in the long term. This will likely make it even harder for SolarCity to attain cheap financing. However, if the solar roof ends up capturing the attention of the mainstream, SolarCity should be able to extend its dominance for at least a few more years.

Tesla's reputation is also at stake with the solar roof product. Given how carefully the company has crafted its image, Tesla needs the solar roof to succeed or risk tarnishing its brand. With a Tesla-SolarCity merger looking more likely, the outcome of the solar roof product will be even more important for Tesla. Other solar companies have largely failed with solar roof concepts such as solar shingles. Given the industry's poor track record in this arena, success for Tesla and SolarCity is by no means guaranteed.

Conclusion

The outcome of the solar roof product should be a good indicator of how well Tesla and SolarCity work together. While these companies are high-risk, they are still worthwhile investments. If Tesla eventually acquires SolarCity, Tesla should become an even more intriguing investment opportunity. Given the fact that both these companies are both leaders in the clean energy sector, they will likely complement each other well.

Disclosure: I am/we are long SCTY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.