Tesla, Inc.: Demand Is "Strong" for Solar Tiles

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Tesla's (NASDAQ: TSLA) cell production for its solar roof tiles, which were announced in May, is finally underway at the company's Buffalo, New York, factory, according to a new report from the Associated Press. Tesla was previously only building "pilot Solar Roof products" on a small scale at a factory in Fremont, California.

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Tesla's solar roof is a result of its $2 billion acquisition of SolarCity last year. The electric-car maker believes that by offering electric vehicles, solar products, and energy storage, it gives its customers a way to enjoy a complete and integrated sustainable energy solution.

Ramping up production

In October of last year, Panasonic agreed to partner with Tesla to collaborate on the photovoltaic cell and module production for Tesla's solar roof tiles. The two companies intended for Panasonic to begin production at Tesla's Buffalo facility at some point in 2017. In return, Tesla provided Panasonic with a long-term purchase agreement for those cells.

AP's report on Tuesday gave investors a better look at how this collaboration is working. Panasonic is producing the cells for Tesla's solar roof and Tesla workers are combining the cells into modules for the solar roof tiles. For now, the tiles themselves are still not made in Buffalo, explains AP's Dee-Ann Durbin. But, eventually, both the tiles and traditional solar panels will be made in Buffalo, Durbin said.

Producing cells at the Buffalo factory, which Tesla refers to as Gigafactory 2, is an achievement Tesla is "pretty proud of," said Tesla Chief Technology Officer JB Straubel.

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Things must be going well with initial production, as Straubel told AP that Tesla now expects to be able to achieve 2 gigawatts of cell production annually at Gigafactory 2, up from an initial target for 1 gigawatt.

An update on Tesla's solar business

Tesla began taking orders for its solar roof products in its second quarter, and the company said in its second-quarter shareholder letter that it expected to begin producing its solar roof products "before the end of the year."

For now, however, Tesla's solar sales are concentrate on sales of solar panels. In the second quarter, the company deployed 176 megawatts of solar energy generation systems, below what SolarCity was deploying in the year-ago quarter as a separate company from Tesla. The reduction in solar deployments comes as Tesla focuses on more profitable projects that can generate positive cash flow for Tesla.

And this strategy is working, Tesla explained in its second-quarter shareholder letter: 

The upfront cash generation of the energy generation business continues to improve. The portion of residential customers who elected to purchase rather than lease a solar system grew to 37% of deployments in Q2 (up from 6% a year ago), and we expect this trend to continue in Q3.

In addition, Tesla said its solar deployments were also down year over year because management decided to stop selling solar panels through its door-to-door sales channel, opting instead to sell panels online and through Tesla stores.

Of course, as Tesla begins producing its solar roofs at scale, investors will want some insight into how well the newer product is selling. For now, Straubel told AP that demand for the products remains "strong," noting that reservations for the tiles stretch beyond Tesla's production plans for this year and next.

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Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.