Elon Musk, chairman of SolarCity and CEO of Tesla Motors, speaks in New York on Oct. 2, 2015.RASHID UMAR ABBASI/Reuters
One of the shortcomings of solar panels is that they produce either too much or too little electricity, depending on whether the sun is shining.
That's a costly nuisance for power utilities, which must constantly back up renewable solar or wind power with more constant energy sources.
That in a nutshell is the energy challenge that U.S. entrepreneur Elon Musk has set for himself with Tesla Motors Inc.'s $2.6-billion (U.S.) purchase last week of sister company SolarCity Corp. Mr. Musk is chairman and largest shareholder of both companies.
Analysts aren't convinced. Skeptics have savaged the takeover as a risky and conflict-of-interest-ridden marriage of two cash-guzzling money losers. The Wall Street Journal unkindly dissed the combination as "the equivalent of a shipwrecked man clinging to a piece of driftwood grabbing on to another man without one."
Not surprisingly, the South African-born entrepreneur sees the deal quite differently. The concept, according to Mr. Musk, is to merge Tesla's battery storage technology with SolarCity's rooftop systems in a way that allows homeowners and commercial users to become their own electrical utilities.
"Accelerating the advent of sustainable energy … [is] not some silly hippy thing," Mr. Musk insisted in a recent Tesla blog post he dubbed "Master Plan, Part Deux."
"It matters for everyone."
True to form, Mr. Musk isn't thinking small here. His green vision is to "create a smoothly integrated and beautiful solar-rooftop-with-battery product that just works, empowering the individual as their own utility, and then scale that throughout the world."
Bigger and better batteries would allow electricity generated during the brightest parts of the day to be used after the sun goes down. That, in turn, would allow a homeowner to generate the power to charge up his own electric car – one presumably made by Tesla.
Work is already under way. SolarCity has launched a demonstration project with Pacific Gas & Electric that aims to match rooftop solar power with battery storage at up to 150 homes in San Jose, Calif.
There are likely to be a few more roadblocks before Mr. Musk achieves his dream of going global. Cash, cost, competition, uncertain government subsidies come to mind as potential hurdles.
Battery storage is the most significant hurdle. At thousands of dollars per home, batteries capable of storing significant amounts of power remain prohibitively expensive.
And in spite of significant government incentives, solar power provides a tiny fraction of electricity produced. Solar makes up just 0.06 per cent of Canada's electricity supply, and 0.6 per cent in the United States.
Tesla and SolarCity acknowledge it will take three to five years before they can pair batteries to most solar installations.
Another key question is whether the merged company can survive the expected cash burn, while also going into large-scale production of its $35,000 Model 3 electric car for the masses. In the past year, Tesla has consumed 50 cents of cash for every dollar of revenue. The ratio at SolarCity is a staggering 6 to 1. This year alone the two companies are on a pace to burn through nearly $3-billion worth of cash.
Still, investors are apparently ready to go along for the ride. Tesla stock took a bit of a hit when the takeover was first floated in June. But it has since regained most of the lost ground.
And every time the company goes back to financial markets for more, investors eagerly jump in.
Potential buyers of the Model 3 are also optimistic. Roughly 370,000 people have plunked down a $1,000 refundable deposit to reserve a car that isn't slated to be delivered until next year.
Tesla's goal is to ramp up production to 500,000 vehicles annually from last year's 50,000 by 2018, with the help of sophisticated robots. As Forbes Magazine pointed out, that's a bigger leap, percentage-wise, than the 700-per-cent increase Henry Ford achieved in the two years after he invented the moving assembly line in 1913. Tesla will need to build one car every 55 seconds – roughly the pace of the top-performing Toyota, Ford and GM plants in the world.
That makes the Model 3 a much bigger bet than home solar-powered battery packs.
Soon, two big bets will be wrapped into one high-risk package.