Residential Solar Costs: How Low Should They Go?By Cas Biekmann | Thu, 07/30/2020 - 09:07
Soon after Elon Musk’s Tesla acquired US residential solar player SolarCity four years ago, bringing down prices appeared to be the name of the game. Today, Tesla boasts record low prices. But will this come back to bite customers? GreenTech Media reports that according to WoodMackenzie’s analysis, low prices come with certain risks attached. MBN interviewees provide further insight on the issue, while considering the Mexican context.
Tesla reduced prices by stopping door-to-door sales in 2017. One year later, Tesla cancelled its partnership with Home Depot. Finally, Tesla shut down its own stores and moved toward an online-exclusive presence. The company has a standardized portfolio. By investing only the minimum in marketing and sales, Tesla’s solar arm reduced costs by 64 percent. As a result, the company is able to offer residential solar solutions at a 20 percent lower cost than the industry’s average, says WoodMackenzie.
Although WoodMackenzie lauds Tesla for its progress, their strategy is not without risk, which could eventually reach the consumer. Tesla’s profit margin per customer is rather small, to the point of barely existing at all. The cost of customer acquisition is closer to that of a small local installer. In general, US companies destine nearly one third of the cost of their projects toward this end. Tesla, however, benefits from the brand’s popularity gained in recent years. This vastly decreases its need to market their product. Furthermore, Tesla is diversified enough that it can keep its profit margins to a minimum without suffering consequences. Its other business lines can easily carry the brunt, after all.
One potential issue is that Tesla slashed its consultative solar sales, in which the company consults potential buyers on what systems are best suited for them. WoodMackenzie thinks that Tesla’s approach in this regard is not priced sufficiently low enough for customers to ditch consulting at a slightly higher cost.
In the Mexican market for distributed generation, many players look toward an approach where costs are slightly higher, but where service is held to a higher standard. Mexico’s main manufacturers of solar panels are an example. Key competitor Enersis explained to MBN how these added values make a difference in the market. “Local service is another important added value. Our clients can rest assured that if they have an issue with their panels, even many years after, they can ask for our support in Mexico without having to contact a company in China. Our technical support department is robust and our engineers provide support free of charge,” said Commercial Director Rodrigo Hernández.
Bright, another player in Mexico’s market, thinks that a strong focus on the customer is the best approach as well. Strategies can be managed online through interactive proposals sent to the client for instance. Co-Founder Jonah Greenberger says that it is key to make the customer’s adoption of solar panels run as smooth as possible. “We are seeing that there is a lot of friction in the process of adopting solar. It is a hard process involving interconnection with CFE, third-party installers and making sure that the panels look good on the roof. We want to remove the friction, so the homeowner knows exactly what to expect,” he said during an interview with MBN.