Tesla’s Quest for a Sustainable Future: Acquisition of Solar City

With the in progress acquisition of Solar City, Tesla catalyzes the transition to a sustainable future in all aspects of energy consumption.

In a recent presentation to the Tesla and SolarCity Proxy Advisory Firms, the presenters, including Elon Musk, discussed how today’s energy landscape shows record high carbon dioxide levels. Currently, 94% of CO2 emissions result from fossil fuel combustion, 82% of total energy utilized is produced from fossil fuels, and ⅔ of all fossil fuels consumed are used in transportation and electricity production [1]. Driven by the mission to “accelerate the world’s transition to sustainable energy”, Tesla is fully aware of these threats and opportunities associated with climate change [2]. As evidenced by the in-progress (awaiting shareholder approval) acquisition of SolarCity, Tesla is about more than just commercialization of electric vehicles. The company is thinking about long-term growth and their strategic direction.  

Primarily, Tesla is known for its dream of creating a mass market electric vehicle. Tesla’s electric vehicles promise its customers a new world where there are no expensive gas station stops and no pollution emitted while driving.“Even when you factor in the carbon emissions and pollution from the power plants that produce the electricity to power the cars, and from manufacturing and disposal, electric cars produce about 40 percent less carbon dioxide and ozone than conventional cars,” and all of these benefits are provided without sacrificing the sleek style and luxury of a high end brand [3]. Clearly Tesla takes the environment and the sustainability of the earth seriously and is striving to make it an easy choice to pick a product that saves the world.

However, Tesla unfortunately has consistently been reporting losses, partially due to the huge costs it faces while upscaling production. To combat that and to address the effects of climate change’s physical manifestations and the related regulation, Tesla is pursuing a strategic combination of solar and storage. The two areas are highly complementary and provide substantial cost efficiencies and revenue synergies. The longer term hope is that these choices will drive improved cash flows.

Clearly, Elon Musk has a grand scheme where he aims for Tesla to become an “innovative vertical integration of energy generation, storage and consumption [that develops] sustainable energy products” [1]. How? The company’s long-term purpose is to help “expedite the move from mine-and-burn hydrocarbon economy towards a solar electric economy” [1]. Tesla is striving to become self-sufficient with the big picture in mind and the potential SolarCity acquisition aligns with those goals. Tesla hopes to control the entire energy sector under its brand: automobiles, batteries, and solar.

Yet, this is not enough. Tesla needs to continue to take additional steps to move its organization forward and keep its position on the cutting edge. There are some clear issues with the solar landscape: energy needs to be harnessed even when not in daylight hours. Additionally, unlike electric vehicles, solar panels are not considered sexy. There is room for improvement in both cost and aesthetics of Solar City’s products.

Robert Tenent, a senior scientist at the National Renewable Energy Laboratory, describes it best: “Ugly doesn’t sell in the building space. For solar technology to take off, it has to meet performance and durability standards, while also integrating with the electricity grid […] and you have to look cool while you do it to really get something adopted” [4]. SolarCity is combatting this problem with new aesthetics in the solar roof space as seen in the picture here. The slate roofing tiles are glass tiles filled with solar cells. As seen in the Tuscan Home picture above, roofs can meet our traditional appearance standards while harnessing the sun’s power! With experimentation of these new aesthetics for solar roof panels, adoption rates should continue to rise.

With the SolarCity acquisition, Tesla is defining what the future of energy is in our world. The company is taking a leading stand in this conversation about climate change, and they are creating an opportunity for themselves to drive solar energy adoption. The combination of the two companies builds this dream of offering “end-to-end clean energy products”, where society can minimize our dependence on fossil fuels and the utility grid while also lowering costs [1]. Tesla is already clearly “catalyzing the transition to sustainable transportation”, but with SolarCity, they take their vision further by creating a comprehensive sustainable future in all aspects of our life where energy plays a role [3].

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  1. Tesla. Tesla Solar City Investor Presentation. N.p., Oct. 2016. Web. 3 Nov. 2016
  2. @teslamotors. “Tesla.” Tesla. N.p., n.d. Web. 04 Nov. 2016.
  3. Bullis, K. How Tesla is driving electric car innovation. MIT Technology Review. 7 August 2013
  4. “New Solar Roofs.” Popular Science. N.p., 2 Nov. 2016. Web. 4 Nov. 2016.


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Student comments on Tesla’s Quest for a Sustainable Future: Acquisition of Solar City

  1. Denzil, thank you for an interesting read.
    Tesla is a very intriguing company in today’s landscape. Their plans regarding solar roof tiles are just on piece in the puzzle for the company that is also pushing forward their electric cars and wall batteries (that will potentially store energy from the solar tiles). In doing so, Tesla may be on the way to creating a whole eco-system of products that can have a substantial impact on climate change.
    What I think is the most interesting aspect here is whether their sustainability efforts are sustainable? As you mentioned Tesla are continuing to lose cash and are yet to be profitable. For how long will they be able to continue operating in this manner and is there perhaps an Elon Musk bubble that will eventually burst?
    Perhaps one way to address this issue is via regulations, where the government/municipalities can introduce building standards that will include sustainability as a measure. There may be a potential for Tesla to player a major role in pushing towards such decisions. On the other hand, I am worried about the role that the big electrical companies will play in this game, seeing as they wield considerable political and economic power? How do they fit into a world were a house can serve as its own energy-producing ecosystem? Is there a potential partnership here in order to avoid a struggle that will lead to losses on both sides?

  2. In my comment on the post “Tesla Talks Climate Change,” I mentioned my belief in a future where we see solar-powered, electric, and autonomous vehicles taking center stage in the evolution of global transportation. Here you mentioned that “Tesla hopes to control the entire energy sector…automobiles, batteries, and solar,” and I am very optimistic about the future the acquisition of Solar City will provide. In fact, to power every car-mile in America with solar power, we would only need 875 square miles of solar panels whereas it takes 429,000 square miles of land for the oil & gas industry to produce the energy required to achieve the same feat with internal combustion engines.[1] While this energy infrastructure would obviously be more difficult to develop in practice, this example alone shows the vast potential for a solar/electric vehicle combination. However, as it relates to commercial and utility scale solar, you clearly demonstrate a significant limitation in that it cannot produce constant power in the same way an atom-based source can. At least in the near term, fossil-based fuels and fission based nuclear are here to stay. Hopefully, Tesla can help drive the next wave of renewable innovation while we wait for fusion power to be figured out.

    [1] Tony Seba, “Clean Disruption” (Silicon Valley, California: Clean Planet Ventures, 2014), p. 112.

  3. Interesting article on the reason and advantages of an integration. However, I would like to push you on this topic a little bit. Given the current financial situation of both Tesla and Solar City, do you think this is the right time to do this acquisition? Even before the stakeholders have approved it?
    To me it seems like Elon is just trying to save a doubtful bet with a great (but probably hyped) bet and that in the end he might lose two and what is worst, we might miss a company that is seriously pushing the boundaries of what we thought was possible on an electric car. Additionally, is Elon Musk doing disservice to the the stakeholders that trusted him by looking more after the environmental impact rather than the monetary impact that they were looking for?

    In case you would like to read further on the financial situation, refer to the following article which discusses how both share prices have fallen, implying that the parts are more valuable separate than as a whole.

  4. Denzil – thank you for sharing your perspective on Tesla and Solar City. I just sent a link to my family over the weekend showing them how solar panel roofs are now a lot more aesthetically pleasing [1] (having just replaced our roof this year, it was top of mind)! I think this is a great step in increasing customer adoption. However, given that Tesla showed its first profitable quarter in three years [2], it may be a concern that a solar roof would be something consumers only look into building/replacing once every few years. Do you think this is a concern for Tesla on the recurring revenue stream front? While it may be great for the fight against climate change, I’m not positive it is a profitable business for Tesla.

    [1] https://www.bloomberg.com/news/articles/2016-10-31/no-one-saw-tesla-s-solar-roof-coming
    [2] http://www.nytimes.com/2016/10/27/business/tesla-quarterly-profit.html

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