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Why Tesla's Solar Roof Is Just Another Giant Taxpayer Gift To Elon Musk

There are two things in which Elon Musk is an undisputed champion: creating hype and buzz for massively cash-flow burning products and companies, and abusing every possible loophole in the US tax code to get explicit and implicit subsidies from the government. He demonstrated the latter on Wednesday, when Tesla began taking orders for its solar roof tiles, a cornerstone strategy of Elon Musk's strategy to sell a "green", fossil-fuel-free lifestyle under the brand name of its luxury electric vehicles.

First the bad news: Tesla said the product, which generates solar energy without the need for traditional rooftop panels - assuming one lives in a traditionally sunny climate - will be substantially pricier than a conventional roof but don't worry, it will "look better" and ultimately pay for itself through reduced electricity costs... it just may take 20 or more years for the payback period to occur (more on the math below).

Made with tempered glass, Tesla assures that "Solar Roof tiles are more than three times stronger than standard roofing tiles" and is why the company offers the "best warranty in the industry - the lifetime of your house, or infinity, whichever comes first." There is just one problem: most Americans live in their house less than a decade before they end up selling it and moving to a different roof, which means that the vast majority of Americans who end up buying the new Tesla product offering will have moved out of their home long before the investment pays back for itself.

The solar roof tiles were unveiled in October as Musk sought to convince shareholders of the benefits of combining his electric vehicle maker with SolarCity, the solar installer run by his cousins. Tesla acquired SolarCity in November, and has been working to remake a money-losing company that was selling traditional solar systems into a premium energy brand. To date, other companies have had little market success with attempts to incorporate solar technology directly into roof tiles. It remains unclear whether the products will appeal to consumers as much as Tesla's electric vehicles do.

Being a Tesla product, esthetics are perhaps the most important variable, and as shown in the images below, the roofs are certainly pretty and comes in four different formats:

Textured:

Smooth:

Tuscan :

and Slate, although only the first two are currently available.

In order to create hype for his latest product offering, Musk took a page from his Model 3 playbook, and told potential buyers to literally get in line by putting down a $1,000 deposit via Tesla's website. There, they can also calculate the estimated upfront cost of a solar roof. The problem with this attempt at generating buzz is that its wears off quickly, and can rapidly become a liability as we showed after the latest Tesla earnings report, which shows an accelerating decline in Model 3 customer deposits.

Now, the good news, if only for Musk... which also happens to be negative for taxpayers.

Tesla said the solar tiles cost $42 per square foot to install, making them far more costly than slate, which costs around $17 per square foot, or asphalt, which costs around $5. To mitigate the price shock, Musk said average homes would only need between 30 and 40% of their roof tiles to be solar; the rest would be Tesla's cheaper nonsolar tiles which would blend in with the solar ones.

Tesla said the typical homeowner can expect to pay $21.85 per square foot for a Tesla solar roof. A 1700-square-foot roof in Southern California, with half the roof covered in "active" solar tiles, would cost about $34,300 after a federal tax credit, according to the website calculator. And this is where the fibbing began: the company said its solar roofs would cost between 10 and 15% less than an ordinary new roof plus traditional solar panels. However, according to Jim Petersen, CEO of PetersenDean, which installs about 30,000 new roofs plus solar a year, told Reuters that a 1700-square-foot roof with new solar panels, including the tax credit, would cost about $22,000, well below the Tesla website's estimate.

Tesla also calculates that every roof would generate an estimated $62,100 in electricity over 30 years. Over that time period, Tesla estimates, the homeowner would save $8,500. However, as explained above the breakeven period take places somewhere between 20 and 25 years into the life of the roof, by which point the original buyer is most likely long, long gone, unable to capitalize on the full IRR.

But the punchline is all the roof costs are net of, drumroll, federal tax credits, also known as subsidies to the producer in this case Elon Musk, who has made a living off capitalizing on state and government generosity. Here is the bottom line: every Tesla roof would be eligible for a roughly $15,500 federal tax credit.

Here is an actual example of how Tesla "pitches" a typical solar roof on its website, in this case let's assume the White House will be "solarized."

The bottom line is a cost of $57,500 for a roof that is 50% covered in solar tiles, or roughly $33/square foot, double the cost of slate, oh and which would also require the purchase of a Tesla $7,000 Powerwall battery. The kicker, however, is that the entire purchase would be uneconomical over the entire life if its wasn't for the $15,800 tax credit! Only with that "freebie" is the "net earned" over 30 years positive, and even so it comes to less than the actual tax credit received!

The bottom line, Tesla's new, "cool" and extremely expensive product offering is only viable due to yet another round of generous taxpayer subsidies in the form of tax credits, without which the entire concept falls apart as breathtakingly uneconomic. Which, considering the vast amounts of money Tesla burns on its cars, one can say about the bulk of Elon Musk's product creations.