Given this history, it was very strange for Tesla Motors Inc (NASDAQ:TSLA) (its subsidiary SolarCity Corp (NASDAQ:SCTY)) to enter the solar panel manufacturing industry by announcing a 1 GW plant in New York. It wanted to vertically integrate despite knowing the pitfalls.
Even Before Launch, Tesla Has Failed In The Solar Panel Business
In 2014, when Tesla Motors Inc (NASDAQ:TSLA) announced a gigawatt scale solar panel factory, the reasoning given by Elon Musk (2) was to create economies of scale in solar panels something similar to what he was doing with lithium batteries.
“Our intent is to combine what we believe is fundamentally the best photovoltaic technology with massive economies of scale to achieve a breakthrough in the cost of solar power… At a targeted capacity greater than 1 GW within the next two years, it will be one of the single largest solar panel production plants in the world. ”
But 1-gigawatt plant in 2016 is really not big given that top tier Chinese companies will be shipping around 5-6 GW of solar panels this year. Economies of scale and low costs seems difficult to achieve given that SolarCity’s target cost of producing solar panels (3) at 55 cents/watt seems ludicrously expensive, considering the current international price of 36 cents/watt. Tesla is now trying to save face by signing an MOU with its battery partner Panasonic to invest in its solar factory. But Panasonic is itself a marginal player in the solar panel production industry now and recently closed its Japanese plant because of high costs. Industry experts have also questioned the compatibility of Silveo’s and Panasonic’s technology and the huge delays in the completion of the Buffalo factory.
It seems extremely difficult for either Panasonic or Silveo to become competitive with the top tier Chinese companies in my view. They will remain niche producers at best. But what is the logic of Tesla being a niche panel producer? They are much better off using their capital and management bandwidth elsewhere and buying the solar panels from the Asian manufacturers as they currently do. The lithium battery business is a new area in which the Panasonic and Tesla combination can create new benchmarks in costs but the solar panels race has already been lost. The faster the Tesla management realizes it the better.