Is Tesla a Threat to Utilities?

Elon Musk has decided to give oilmen a break, by unveiling a new product that will keep utility executives awake at night. It’s the Tesla Solar Roof and it might just disrupt the entire electricity business.

The roof consists of solar tiles that look like real shingles and the price will be competitive with regular roofs, Bloomberg’s Tom Randall concluded. The cost of the solar tiles is around $42 a square foot; which is less than the price of competing products like Terracotta Tiles, slate shingles, glass tiles, concrete shingles, cedar shingles and synthetic shingles.

The price is even slightly lower than that of America’s most popular roofing material: asphalt shingles, a Bloomberg chart claims. Note: at least other popular roofing material metal was not included in the comparison.

Every Home a Solar Power Plant

This is incredible because each of the active tiles is a miniature solar panel, yet they look like a normal roof. Musk’s grand design is to turn every home, barn and business into a solar power plant. The solar cells are supposed to feed electricity into the grid and to store it for future use in the Power Wall battery.

Another use will be to provide extremely cheap fuel for Tesla Motors (NASDAQ: TSLA) vehicles. So I guess Musk will be keeping oil executives up at night as well. The roofs will be sold through Tesla Stores and possibly marketed with Tesla vehicles.

What’s truly interesting is that the Solar Roof tiles are supposed to be stronger than other tiles. The tiles are so strong that is offering actually offering an “infinity warranty” on the non-solar cell models, and a 30 year warranty on the ones with the cells. Each Solar Roof will actually be a mix of non-power and powered tiles.

Tesla is taking orders for Solar Roofs at its websites and plans to begin installations in the U.S this summer. Sales of the product outside the United States are scheduled to begin in 2018.

The tiles eliminate one of the major problems with previous solar systems, they are not ugly. Houses with them look like any other home on the block.

 The Danger to Utilities

The danger to utilities here is obvious, large numbers of home and business owners may soon be in a position to generate their own electricity with very little outlay. That will make rate increases extremely hard to implement and put pressure on a failing power grid.

The power grid is increasingly unreliable, the number of power outages in the United States increased 285% between 1984 and 2014, data compiled by the Department of Energy (DOE) and the North American Electric Reliability Corp indicates. Those outages cost US business $150 billion a year the DOE reported.

That means there will be a huge business market for the Solar Roof, including hotels and apartment houses. Some major customers will be all the people who rely on computers that run on electricity for their businesses including accountants, lawyers, writers, and software engineers. Landlords are likely to be major customers as well.

A major revenue stream from Solar Roof might be restaurant and hotel chains. There are 14,146 McDonalds in the United States and most of them have tile roofs that can be replaced with Solar Roof tiles. Therefore orders from just one fast-food chain might make Solar Roof profitable.

Another would be to convince cities to disconnect from utilities and rely on electricity generated by residents instead. Some communities like Boulder, Colorado, have already tried to disconnect from the coal and gas fired power grid.

If Musk’s plan works out utility stocks might no longer be a good long term investment. Don’t sell utilities just yet, but keep the Solar Roof in mind when you do your long term portfolio planning. It just might make utilities, coal and natural a lot less valuable in the near future.