Elon Musk has been broadcasting this message since Tesla reported a surprise profit in the third quarter. On the call with Wall Street analysts after the earnings in November, the Tesla CEO said, “For almost two years we had to divert a tremendous amount of resources.”
Now Musk claims Tesla is poised for “the really crazy growth for as far into the future as I can imagine. ... It would be difficult to overstate the degree to which Tesla Energy is going to be a major part of Tesla’s activity in the future,” he said.
Never one to shy away from bold claims or ambitions, Musk said Tesla Energy could grow to roughly the same size as Tesla’s automotive business, and solar would grow, on a percentage basis, the fastest of any, with storage second.
“I think both over time will grow faster than automotive,” Musk said. “They’re starting from a smaller base.” He added, “I think, especially, if you look at sort of — if you look at, like, year-over-year growth, it will be absolutely incredible ... over the course of, say, a year, gigantic increase.”
In a recent internal email to Tesla employees, Musk outlined two critical year-end priorities: delivering all cars to their customers and boosting the rate of solar deployments by a significant degree.
Skeptics point to a variety of other reasons why Musk may be in solar- and energy-business salesman mode, beyond the Model 3 inflection point. The solar business has in recent years been associated with more negative than positive news. Tesla faces a lawsuit from shareholders over its controversial 2016 purchase of SolarCity; the solar roof that Musk has been touting for years is off to a slow start; its solar panel plant in Buffalo, New York, has been dogged by issues; and its solar business has faced unfavorable customer-service reviews.
Tesla did not respond to multiple requests for comment.
The outlook for Tesla’s solar business
Industry experts and Tesla watchers are applying a heavy discount to Musk’s energy claims, saying the Tesla chief is prone to hyperbole and exaggeration.
“I’d take all Elon claims with a grain, or metric ton, of salt,” said Morningstar equity analyst David Whiston. “Energy probably stays a small piece of Tesla for a long time because there’s so much growth to come in auto with new vehicles and AVs [autopilot].”
“I don’t doubt there’s a nice growth runway long term for solar,” Whiston said, but added, “Like a lot of things in investing, it’s a show-me story.”
Analysts covering the rooftop solar sector estimate that it can grow from a low-end estimate of 10% annually to as high as 20%, based on the performance of the leading companies, such as Sunrun, SunPower and Vivint Solar.
“Tesla over the past two years has really taken their eye off the ball there, despite a visible brand. … The solar business shrank dramatically,” said JMP Securities analyst Joe Osha, who covers both Sunrun and Tesla.
“Part of what maybe Musk thinks is they can come back and take market share and it would seem to me the EV business growing in the mid-teens as well, so maybe he thinks they can grow more quickly in solar because they can take share. We’ll see. They are an amazing company and they’ve done some amazing things, but they really mismanaged that business.”
A Tesla car is like a Chanel bag. Rooftop solar is electricity … a complete commodity. ... Most people have zero idea whose panels are on their roof. I’m not sure a charismatic leader can help sell that product.
--Sophie Karp KEYBANC CAPITAL MARKETS ANALYST
KeyBanc Capital Markets solar analyst Sophie Karp said one issue Tesla may run into is the difference between selling solar and selling a car, where the brand Tesla has built is more persuasive.
“Solar is a product that is a push, not a pull; it is sold not bought,” Karp said. “You can’t just snap your fingers and have an overnight sales channel allowing you to grow 20% to 30% growth. It is really difficult to generate explosive growth in this space.”
She added: “A Tesla car is like a Chanel bag. Rooftop solar is electricity … a complete commodity competing on price. Most people have zero idea whose panels are on their roof. Who cares? I’m not sure a charismatic leader can help sell that product.
“Maybe they can fix it, but they have not so far demonstrated that, and it requires a lot of management and attention. Sunrun has kicked their butts.”
Analysts say Tesla’s decision to let the solar business slip makes the process of returning to a No. 1 position in solar more difficult. “Tesla did not invest and made clear to everyone it would just run solar for cash flow … and not use as an area of growth,” Karp said. “I would not be super worried about them being a competitor in the space anytime soon,” Karp said, referring to companies like Sunrun and Vivint.
