Wednesday, May 17, 2017

Tesla and SolarCity

Tesla's Acquisition of SolarCity Should Be Revisited In Light of the Solar Roof Developments and How That Plays to Tesla’s Strengths
Tesla is perhaps best known for their innovative, safe, and ridiculously quick electric vehicles. Because of this, when Tesla and solar-panel producer/installer SolarCity jointly announced that Tesla was acquiring SolarCity on August 1, 2016, it was met with confusion by many, even leading to Tesla shareholders filing a suit against Tesla for the move. Nevertheless, the acquisition was approved and completed in mid-November, 2016. With some of the dust settled on the 6-month-old acquisition, and recent announcements on details of the Solar Roof, was Tesla’s acquisition of Solar City sound, and does it complement and differentiate their suite of products in the market?
An argument for the complementary nature of the products - storage meets generation - is enticing enough for further investigation. Much of the coverage has been bearish, however, from its first rumoring (e.g. Tesla, Solarcity Looks Like A Bad Fit) and continues (e.g. Solar Shifts Could Fry Tesla Earnings) up to just before Tesla’s most recent quarterly earnings report. On a short-term basis, it does look like Solar City is a bad acquisition - bankruptcy potentially looming, large cash losses, slowing panel growth - but this is not a short-term business, and their strengths are not tied to a certain industry, such as personal transport, but to electrification of existing markets. It is true that Tesla first benefitted in their application of electricity storage and electric drivetrains for their vehicles, but they are not reliant on vehicle knowledge. Tesla did not produce a compelling electric vehicle - they produced a compelling vehicle, that happened to be electric.
Tesla continued this with their PowerWall and PowerPack electricity storage solutions for residential and commercial applications, respectively. These were not just good batteries for buildings - they are good and cost-effective power solutions for buildings, competing against generators as well as battery systems. Tesla is now applying this to electricity generation. Tesla has realized they are not competing against other solar panels, they need to make the best roof possible, and that just so happens to generate electricity. The Solar Roof looks like a normal roof, is cheaper in the long-run, and has an infinity warranty, all while being far “greener” than what is on the market today.
While Tesla acquiring SolarCity may seem a vertical integration play, the longer-term benefit is bringing the Tesla special sauce - designing broadly appealing, best-in-class products that happen to be electric - in order to support the environmentally differentiating strategy that defines Tesla, encapsulated in their mission statement: Tesla’s mission is to accelerate the world’s transition to sustainable energy. It will be interesting to see what other staid markets Tesla brings into its focus for improvement for sustainability via electrification.

By Falgun Patel, Andrew Sharp, Toru Terai, & Pedro Vazquez


Tesla’s Solar Roof is designed to appear like a normal roof (tesla.com/solarroof)

Screen Shot 2017-05-17 at 7.38.34 PM.png
Solar City solar panels are easily discernable on a roof (solarcity.com/residential)


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