In 2016, #Tesla Inc. bought SolarCity – a #solar panel installer – for $2 billion. This decision saw #Elon Musk, Tesla’s CEO, come under a lot of scrutiny. His critics failed to see the synergies between the two companies, among other problems. However, it looks like Elon’s Integrated Business Model is a winner – it makes sense and is proving to be a strong concept.
Nowadays, companies that install solar panels are actively looking to forge lasting partnerships with other larger companies. The solar energy industry has been growing for the last 16 years – some may say that it was/is growing at a very fast pace. However, now the industry is shrinking in some ways, and solar installers find themselves in a weakening position. They [smaller, less-established companies] no longer can support their traditional sales model of cold calling, knocking on doors and using kiosks installed in malls to sell their services. Solar installers found that it is a lot better for business to be under the umbrella of large, well-established companies – such as Tesla Inc.
For example, Sunrun Inc. is discussing a partnership with Comcast Corp. to sell solar panels through the giant US cable-TV company. In October of 2017 the two companies reached a deal that would see Comcast use its marketing arm to reach a portion of its 27 million subscribers and sell them solar services. Another example would be Vivint Solar Inc., which is pairing its solar panels with an efficient energy management system, developed by Vivint Smart Home – one of its sister companies.
At the time of writing, the SolarCity brand has essentially evaporated, but customers can buy solar panels from any of the 300 Tesla stores located worldwide – the same place where the company is selling its electric vehicles. They can also get in-depth information about the eagerly awaited “solar roof” from any of these stores. One of Tesla’s plans is to have dedicated solar energy sales people in over 70 stores across the US as soon as possible. Even though Tesla’s sales of solar energy and solar systems have been modest so far (the company is still focusing intensely on making the Model 3 sedan), things are expected to pick up soon. There is a lot of talk surrounding investing in shares of Tesla at this time.
The Integrated Business Model and Customer Costs
Statistics show that the costs of acquiring customers can take up to 20 percent of expenses, and these costs can sometimes be larger than the solar panel costs. In addition, many customers are reluctant to sign on to decades-long contracts with small, newly established companies that they see as weak. The Integrated Business Model is able to solve both the problem of customer-acquisition costs and the trust problem. The alliance between solar installers and large companies – also known as the brand association tactic – is expected to drive down the costs consistently.
According to Joe Osha, an analyst at JMP Securities LLC., “Being a pure solar company is too difficult. Companies are rediscovering something: customer relationships are really important.”
The new business model was in the works for some time. Solar installers focused almost solely on growth throughout the first part of 2016 because the solar industry grew an astounding 48 percent in 2015. The no-money-down leases used by solar installers meant they could pump up sales as much possible. And no other company fared better than SolarCity. It managed to staff hundreds of kiosks, used aggressive advertising to help people remember its brand, and its sales peoples’ cars were everywhere. SolarCity was the national leader in solar.
However, the solar industry slowed down significantly to just 20 percent during the last year. Nowadays, homeowners have fewer financial incentives to install solar panels due to changes in government policies. The biggest solar market, California, saw the sharpest decline in solar sales.
As a solar industry leader, SolarCity was hit by these changes the hardest. It was spending huge amounts of money to acquire customers and was using the debt markets to get more money for its rapid expansion. As a consequence, in June of 2016 Musk proposed that Tesla acquire SolarCity. It was similar to a bailout action – with Musk already controlling part of SolarCity – and several conflicts of interests were spotted.
However, Elon Musk had a vision. He saw Tesla’s stores selling everything from electric cars to solar systems and home battery units. Elon saw the Tesla store as the one-stop-shop for clean, solar energy needs. As such, Tesla announced in April that all door-to-door marketing efforts of SolarCity would stop. According to Tesla, customers preferred going to stores instead, and that the retail and online channels will make up for those lost sales.
The Solar Roof Project
Up to now, Tesla did little to exploit the alliance with solar installers. None of its stores showcase the solar panel technologies or the solar roof – not even the San Francisco store. While it is true that Elon and some of his employees have the solar roof installed on their homes, there is no information about other sales to third party customers. According to Chief Technology Officer JB Straubel, Tesla has already begun producing the solar cells it needs for its solar roofs in the Buffalo factory and the production of the solar roofs will begin at the same factory by the end of 2017.
On the other hand, taking advantage of Tesla’s relatively weak solar sales, Sunrun has managed to boost its solar market share this year. Its recent partnership with Comcast – the cable-TV giant – could help the solar installer even more starting from next year. A pilot program ran by the solar company and the cable-TV company already demonstrated that customers are interested in solar products.
According to Lynn Jurich, Sunrun’s CEO, “I see a future where we’re a strong partner for someone who wants to bring products and services into the home.” Sunrun is planning to be a serious competitor in the solar market, in part due to Elon Musk’s integrated business model. Musk is an innovative individual with plenty of futuristic visions. As a matter of fact, Tesla has now officially turned on one of the largest batteries in the world, according to QZ.com – it will be interesting to continue to follow the solar news which will continue to surround Musk and Tesla as time goes on!