(Bloomberg) -- Elon Musk, one of the world’s richest men, says a $50,000 abode near Brownsville, Texas, is his primary home these days. He has tweeted that he’s made some improvements to the house, without specifying what they are.
But earlier this year, Tesla Inc. employees traveled to Brownsville to install the company’s Solar Roof on that bungalow and several other houses on Weems Street that are owned by another Musk company, SpaceX. The construction project gave Musk an up-close look at a challenge that’s been vexing him.
Musk has many priorities competing for his attention, but recently has become intensely focused on Tesla’s Solar Roof, a niche product that enjoys demand from wealthy consumers but has proven to be a bear to install more cost effectively. While Solar Roof is only a small slice of Tesla’s business, it is essential to Musk’s vision for the company to evolve from an electric-car maker to something much grander: a one-stop shop for a household’s clean energy needs. Tesla’s stated mission is to “accelerate the world’s transition to sustainable energy,” and Musk has been talking up the benefits of solar and the “free fusion reactor in the sky” for years.
Frustrated with the Solar Roof’s progress, Musk has fired many of the executives and directors on the program, raised prices for consumers and gotten more heavily involved in its details. He is keen to improve the amount of time it takes for workers to install the Solar Roof and helped crews with some of the installations on Weems Street, according to people familiar with the matter. If the Solar Roof is a flop, it would represent an unfulfilled promise — a puzzle he couldn’t solve. Tesla and Musk did not respond to an e-mailed list of questions.
Musk’s focus on the Solar Roof comes as court proceedings loom in a critical shareholder lawsuit. When Musk first unveiled the product in 2016, Tesla was in the process of acquiring SolarCity — the solar panel installer where Musk was chairman and the largest shareholder, and his cousins ostensibly ran the company. The deal was rife with conflicts. Though a majority of investors ultimately approved it, dissenting pension funds contend that Tesla’s board rolled over for Musk in saying yes to a $2 billion buyout.
After years of discovery, contentious depositions and delays because of the coronavirus pandemic, the lawsuit is set to begin trial in Delaware on July 12. Musk is slated to testify, according to court filings. The trial could put fresh attention on Solar Roof’s business potential, given that it will examine the decision to put SolarCity under Tesla’s wing.
Read More: Musk’s Solar Deal Has Become Top Threat to Tesla’s Future
Tesla’s solar offering resembles a sleek shingle, with photovoltaic solar cells embedded within tempered glass — a more subtle look than traditional solar panels that sit like hulking slabs on a roof. “It needs to be beautiful, affordable and seamlessly integrated,” Musk said at the 2016 launch event for the product, held on the Los Angeles-area set of “Desperate Housewives.” “You’ll want to call your neighbors over and say, ‘check out this sweet roof.’”
Nearly five years later, Musk is frustrated by how few customers can make such a boast. In 2019, when heralding a version of Solar Roof he pledged would be cheaper, faster and easier to install, Musk set a goal to install more than 1,000 of them a week and vowed sales would “grow like kelp on steroids.”
But Tesla has struggled to hit 200 installations a week, much less 1,000, according to people familiar with the matter. And affordability has proven elusive. In April, Tesla jacked up the price of the Solar Roof, leading to cancellations from customers. In some cases, price hikes of more than 50% came after buyers were already under contract, according to a lawsuit filed in federal court in Northern California on behalf of customers in several states. The willingness to raise prices suggests Musk is no longer prioritizing growth at all costs for Solar Roof, but has shifted focus to the division’s balance sheet.
That created a sense of whiplash for Eric Weddle, an executive at a roofing company in the Midwest that is one of the nation’s first Tesla-certified installers of the Solar Roof.
“For Tesla, there is a lot of pressure to go fast and deploy fast,” said Weddle, who is Chief Financial Officer of Weddle and Sons. “They tried to build a roofing company overnight. From our perspective, it seemed like the directive was to go fast and do more installations, period. And then suddenly, out of left field, came this sudden urge to get on a path to profitability.”
The slow rollout and swerve on pricing don’t reflect lackluster demand. Rather, if Musk’s 2018 race to manufacture the Model 3 was “ production hell,” you can think of his Solar Roof problem as installation hell.
The company is coming to grips with how vastly different it is to fine-tune roof projects than to fix issues on an automobile assembly line. Every home’s roof is unique, including its size, pitch, angle and age. Unforeseen problems can pop up, like rotting beams or termite damage. Permits, which involve bureaucracy, are required, and the process varies widely depending on location. Crews, spread out across the country, need to be trained.
Installation hell is a human-centric problem, and a diffuse one. Musk can’t sleep on the couch of every home getting a Solar Roof, like he claims he did at Tesla’s factory when he got in the engineering weeds to help salvage the Model 3. On Tesla’s most recent earnings call, Musk acknowledged that his team made “significant mistakes in assessing the difficulty of certain roofs,” said that demand remained strong despite price hikes and announced that “we will not sell a house solar without a Powerwall,” referring to Tesla's home battery product.
“Production is going fine, but we are choked at the installation point,” Musk said on the April 26 earnings call.
The installation process for a typical roof is straightforward. Materials arrive at the job site and a small crew installs the composition asphalt shingles with a nail gun. When shingles need to fit around chimneys or vents, workers cut them to size onsite. But the tempered glass used in Tesla’s product cannot easily be cut in the field. The company tried making specialty parts ahead of time, but that sent the number of parts for each job higher, and added more inventory to track.
“The Solar Roof is not an easy product to install, it’s not a cheap product, and it’s going to take a lot of time to dial it in and bring the cost down,” said Mohammed Abdalla, the CEO of Good Faith Energy, another Tesla-certified installer in Texas.
This reporter lives in a 1,295-square-foot house in Oakland, California with no air conditioning and relatively low electricity use. When I punched my address and average electric bill into Tesla’s online calculator, an instant quote came back: the cash price for the Solar Roof would be $47,774: $37,274 for the roof and $10,500 for a Powerwall. The estimate did not include sales tax or the cost of permits.
In mid-April, Musk held a teleconference with key leaders from the Solar Roof program. RJ Johnson, the head of Tesla Energy, was on the call, as was Ryan Nungesser, the director of operations at Tesla’s factory in Buffalo, New York, where the Solar Roof is made.
A few minutes in, Musk fired them both, according to several participants on the call. They found the double whammy dumbfounding because replacements were not announced. Since then, scores of other directors and managers have been purged. Many people reached declined to comment but confirmed they were no longer at Tesla.
“Will Tesla be able to ramp up to 1,000 Solar Roofs a week? Only if Musk cuts his prices significantly and almost gives it away,” said Paula Mints, the chief market research analyst for SPV Market Research in San Jose, California. “Residential solar is more popular than ever, but he has a niche product that costs more.”
It’s unlikely Musk will back away from Solar Roof, whatever its challenges. Instead, he seems hell-bent on making it work.
“No one seems to be worried about the future of the program. Everyone is just worried about the people connected to the program,” said Weddle, one of the certified installers. “We still don’t know who’s running things, and I don’t think Tesla does either.”
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