Questioning Tesla’s New Record-Low Residential Solar Pricing

Since its acquisition of SolarCity in 2016, Tesla has
systematically eliminated all active customer acquisition channels.
In 2017 the company stopped door-to-door sales. In 2018, it pulled
out of its retail partnership with Home Depot before finally
closing all Tesla stores in 2019 and directing potential customers
to their online platform. �

Tesla has now
that it will deliver the lowest residential solar
installation prices in the industry, enabled by a 64 percent
decrease in sales and marketing spend.

The company made adjustments to its offering as of late July,
but Tesla’s new pricing offer is still about 20 percent lower
than the industry average established by Wood Mackenzie in a recent


Wood Mackenzie has now released a new
focused on Tesla that shares three potential price
scenarios, each with a different cost stack, in order to better
understand the viability of Tesla’s strategy.

WoodMac finds that although Tesla’s approach is likely a
window into the future, it is not guaranteed to succeed — and
that solar customers will take on some of the risk.

Digging in to Tesla’s cost stack

Tesla’s dramatic announcement introduced system prices of
$2.01/Wdc across the board for four standardized system capacities:
4.08 kWdc, 8.16 kWdc, 12.24 kWdc, and 16.32 kWdc. Those prices are
before the investment tax credit (ITC) is accounted for.

To put this in perspective, Wood Mackenzie’s assumed
pre-ITC residential system prices are expected to sit at $2.87/Wdc
in 2020 (for a 6 kWdc system with mono PERC modules and DC

Using WoodMac’s national average residential system prices,
Wood Mackenzie looked at three potential price scenarios, each with
a different cost stack.

As part of that analysis, Wood Mackenzie estimated that
Tesla’s true cost stack reflects little-to-no profit margin with
a cost of customer acquisition that mirrors a smaller, local
installer. (Customer acquisition costs for national competitors
like Sunrun and Vivint came in at over $1/watt as of early 2020
according to WoodMac, or nearly a third of the overall price of

How does Tesla believe it can eliminate their most costly forms
of customer acquisition and still attract customers?

First, WoodMac notes that Tesla has brand equity and household
name recognition that support the lion’s share of its

Second, given the diversified nature of Tesla’s business and
its ability to offset low residential solar margins with more
profitable business segments, Tesla’s solar business unit could
potentially remain insulated from the margin pressure imposed on
their competitors in solar (though not indefinitely).

While this helps explain how Tesla could hypothetically attain
such a competitive offering, Tesla’s low prices don’t mean much
if the company can’t execute on installation.

Any solar system size you like, as long as it’s…

Along with the competitive system prices, Tesla has introduced a
standardized approach to solar sales, whereby they are offering
four system capacity options.

A standard system capacity offering may simplify the initial
design and engineering process by reducing variability with module
configurations, and therefore simplifying the sales process. But in
taking this approach, Tesla runs a higher risk of oversizing or
undersizing the system in a way such that production does not fully
offset a customer’s energy consumption.

While this would — or at least certainly should — be
communicated to the customer, it is a significant departure from
the industry-standard customized sales approach, whereby the
customer’s system is sized to match their system production to
energy consumption.

Implications of ditching consultative solar sales

Separate from the installation process, Tesla is taking an even
bigger gamble on the way solar is sold by attempting to upend the
industry standard: consultative sales.

At a time when Sunrun is betting on the direct-to-home sales
channel with its recently announced acquisition of Vivint Solar,
Tesla is taking the opposite approach.

Historically, when residential installers consult with
homeowners about sizing their rooftop solar system, they are
looking at various factors that include assessing the customer’s
energy consumption, rooftop space, available incentives, and more,
all while addressing their customer’s questions.

For many installers, these are vital steps to ensure the system
will yield the highest return on investment or lowest payback
period. But it also adds considerable time and cost to the

Tesla’s recent decision begs the question: for solar
customers, is the additional cost of consultation and a customized
system capacity worth an overall higher price point? For now, given
the absolute price of solar — which is still very high relative
to other consumer durables — WoodMac finds that the answer to
this question is almost definitely yes.

Customers are willing to invest the time and energy into
researching a product to ensure they get the best value if
they’re expecting to spend thousands of dollars, regardless of
the installer. Tesla’s implicit claim is that this assumption
does not hold true in a lower-cost environment.

In Wood Mackenzie’s view, Tesla’s prices are still not low
enough for customers to feel comfortable ditching the consultative
process en masse. Accordingly, WoodMac does not envision that
Tesla’s online model will supplant consultative sales as the
industry standard anytime soon.

Still, in the long run it’s hard to imagine that a national
installer can maintain a cost of customer acquisition that amounts
to one-third of the overall system price and that solar will
continue to be sold on a consultation basis for the next 5-10
years. Thus, while WoodMac finds that Tesla may not be successful
in its new strategy in the near-term, the industry must move toward
more standardization if the market is to scale.

Commoditizing the solar sales process: sign of things to come 

Residential solar is entering a new phase of market maturity. As
the industry entered 2020, it was contending with a declining ITC
and legacy state markets transitioning away from net energy
metering and toward compensating distributed energy resources at
locational-specific and time-varying values.

Because of the ongoing pandemic, residential installers were
forced to materially change how they sell solar to customers, as
shelter-in-place orders have severely limited in-person customer
acquisition channels and sales consultations.

Anecdotally so far, it seems the industry may be better for it.
The transition to digital sales consultation is supporting time and
cost efficiencies while increasing lead volumes — though success
has not been uniform across all installers. Consumer products have
lifecycles, and by most standards, with only 3 perecent national
market penetration, residential solar is still in the very early
stages of its product adoption.

But no consumer goods industry wants to stay at the point of the
adoption curve where sales primarily rely on in-person
consultation. And no industry is immune to the trend toward online

Tesla is an early mover to commoditizing the solar sales
process, and given the high visibility of its brand, it’s really
the only company that has the brand equity to do so. Although
Tesla’s success is not guaranteed, their new approach is a sign
of things to come.

Source: FS – GreenTech Media
Questioning Tesla’s New Record-Low Residential Solar