Elon Musk dubbed this year as “the year of the solar roof.” Although the year was not quite as he expected, there were some notable developments for Tesla (TSLA) Solar this year. With solar roof fires at Walmart and the following settlement, and the launch of Solarglass Roof version three, the company had an eventful year.
Tesla Solar: Solarglass launch
After previous versions failed to gain ground, Tesla launched the third iteration of its solar roof tile in October. This version is more efficient than previous variants and easier to install. Although Musk again set ambitious targets for the Solarglass Roof, we have yet to see those numbers realized.
In this year’s third quarter, TSLA’s solar energy generation and storage segment accounted for a mere 6% of the company’s total revenue. Solar deployments increased 48% sequentially to 43 megawatts but declined year-over-year from 93 megawatts.
Musk’s focus on solar
This month, Musk conveyed his year-end priorities to Tesla employees. Deliveries of all cars to customers was the first priority, and the second was to increase Tesla solar deployments. Tesla’s electric car gross profit margin has been around 20% in 2019, whereas its solar gross margin has been around 13%. Therefore, although the company’s solar segment doesn’t look appealing at this point, the picture might change over time with higher demand and production ramp-ups. Musk has admitted that the company was directing its resources toward Tesla’s Model 3 production ramp-ups and had sidelined the solar segment.
Solar roof fires garnered negative publicity for TSLA this year. Retail giant Walmart (WMT) sued Tesla for fires at several stores in August. However, in November, Walmart dropped the lawsuit, keeping the terms of the settlement confidential.
Tesla Solar in Israel
Tesla launched a wholly-owned subsidiary in Israel late last month, which could be important for its solar segment. Israel’s abundant sunlight and solar-friendly policies could expand Tesla’s solar roof footprint. To learn more, read Will Tesla Solar’s Israel Expansion Bring Success?
Tesla doesn’t use conventional advertising. Instead, Musk reaches out to his more than 30 million Twitter followers and promotes Tesla products. However, this strategy has backfired at times. A Twitter scuffle between Musk and David Einhorn intensified in November when Einhorn expressed interest in visiting Tesla’s Buffalo factory.
Tesla Solar in 2020
In my view, 2019 has set a strong foundation for Tesla Solar with the Solarglass launch, and 2020 could be more interesting for it. How customers respond to the innovative and efficient solar roof tiles amid controversy remains to be seen. The mandate to have a solar roof on every new home in California could also help Tesla Solar next year. Its solar deployments surged in Q3 and could do so again in Q4.
TSLA stock has had a solid run this year. It has surged around 76% in the fourth quarter, and 30% year-to-date. The stock is trading at record highs and gained momentum after the company’s better-than-expected third-quarter earnings release. It has outperformed legacy automaker stocks Ford (F) and General Motors (GM) this year. However, after such a steep rally, could valuation be a concern? To learn more, read Morgan Stanley Weighs in on Tesla’s Valuation after Spike.