Tesla is offering what might be the cheapest rooftop PV systems in the US. The company announced on June 19 that it has cut the prices of its solar panels to one-third less than “the average cost of the industry” and intends to undersell its competitors in the foreseeable future. Along with the lowest-price guarantee, Tesla has also introduced a week-long trial period during which dissatisfied customers of its rooftop PV systems can submit a request for product return to receive a full refund with no question asked and the uninstallation cost covered. On the whole, Tesla is taking more drastic measures to stop the market share decline of its home solar business.
Tesla’s latest earnings and guidance report shows a bullish outlook for its electric car division but also a rather pessimistic outlook for its home solar and energy storage divisions. Among Tesla’s home solar offerings, Solar Roof is the product that the company has been hyping up the most. Solar Roof is basically a rooftop PV system that is consisted of glass tiles with PV cells embedded inside. Instead of being an add-on like rooftop solar panels, Solar Roof integrates into the existing structure of a house. Tesla originally plans to scale up the production of Solar Roof to at least 1,000 tile pieces per week. However, the installation growth and the profitability of this new product have been below expectations.
In the first quarter of 2020, total installations of Tesla’s home solar products came to just 35MW. This figure represents a decline of 35% from 54MW in the previous quarter and a decline of 26% from 45MW in the same quarter a year ago. Tesla’s energy storage division is also struggling. Total installations of the company’s energy storage products in the first quarter of 2020 were 260MWh, translating to a considerable drop of more than 50% from 530MWh in the previous quarter and the worst result of the recent year.
Tesla has made clear of its mission to provide the lowest-priced solar panels in the US by cutting down the costs to one-third less than the industry’s average for products of standard specifications. Besides pursuing a very aggressive pricing strategy, Tesla has also instituted a seven-day free trial period to attract people that are on the fence about adopting renewable energies. Under the free trial policy, Tesla will not only give a full refund to dissatisfied customers but also pay for the cost of taking the solar panels off their roofs.
The Solar Energy Industries Association (SEIA) just released a general report on June 11 to update the American public on the state of the US solar market. The report states that the average costs of residential and non-residential PV systems arrived at US$2.83/W and US$1.36/W respectively in the first quarter of 2020. Using SEIA’s data as a reference, we can see that Tesla has indeed substantially lowered the prices of its residential rooftop PV systems. Tesla’s small (4.1kW), medium (8.2kW), large (12.2kW), and extra-large (16.3kW) systems now cost US$10,000, US$16,000, US$23,500, and US$30,000 respectively. When calculated as per-watt, the prices of the small, medium, large, and extra-large systems come out to US$2.44/W, US$1.95/W, US$1.93/W, and 1.84/W respectively. Even before the federal tax incentives, these prices are below SEIA’s average for residential PV systems. After the incentives, the prices of the small, medium, large, and extra-large systems drop further to US$7,400, US$11,840, US$17,390, and US$22,200 respectively.
(Source: Tesla.)
How can Tesla afford to undercut its competitors by this much? The company said that its pricing has been made possible by a few major changes in its business practices. First, Tesla has established fixed sizes for its solar panels and streamlined the product selection process. Customers can skip consultation with sales agents and directly purchase the recommended standard products from Tesla’s website. Second, Tesla has cut its sales and marketing costs by 64% through the transition from physical to online retailing. It has also stopped promoting its home solar products through the costlier distribution channels. Instead, its home solar products are now integrated into the full range of offerings that are available at its flagship locations. By taking these steps, Tesla can keep down the prices of its PV systems and raise the efficiency of its sales service at the same time.
Tesla offered some cost-benefit analyses in the announcement of its new pricing scheme as well. According to the company’s estimates, an average customer that has bought its large residential PV system in California will be able to recoup the purchasing cost within six years through the savings in the electricity bill and earn an average of US$88,000 over the entire operational lifespan of the system. The average lifetime earnings of the same system are estimated at US$55,000 in New Mexico and US$47,000 in Vermont. It remains to be seen whether Tesla will get droves of American consumers to buy its solar panels with its latest offers.
(News Source: TechNews. Photo credit: Tesla.)