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Elon Musk, Tesla, and the Solar Roof Tile Fraud

via MANSION ENGINEER

Tesla and its impresario Elon Musk are in the news this week. One aspect of his hype machine, the ballyhooed solar roof tiles, looked suspect to most of us who follow solar developments when it was introduced. Like many of his supposedly visionary ideas, there was nothing new about it and others who have worked on it gave up because it was not yet practical or cost-effective. But when Elon is selling blue sky dreams to attract more investors, his PR machine can flood the media universe with hundreds of articles uncritically rewriting Tesla’s press releases before even one skeptic is interviewed.

The solar roof tile scam is one of many schemes Musk has employed to keep his hype machine going. The increasing frequency of new business ventures he’s promoted over the past few years are a sign of desperation; his narrative must keep expanding to bring in more cash to keep the Tesla dream alive. Everything from new models (long-haul semi trucks, a pickup truck…) to solar roof tiles and batteries to stabilize the grid. Each one of these ideas has merit, but the shotgun promotion while the company loses $billions and is years behind schedule in getting Model 3’s out to customers who placed $1000 deposits on the promise of a $35K base model. There is no longer any prospect of a $35K base model, and no money to fund new GigaFactories hyped for China and Europe.

Today we’ll focus on the solar roof tiles and the NY GigaFactory to produce them.

The context of the fraud is Tesla’s takeover of his cousins’ failing business, Solar City, which was nearing bankruptcy when Elon swooped in to offer Tesla stock for it. The motivation was to avoid a failure in his family of businesses which might have damaged his reputation and hurt his much bigger bubble company, Tesla. Musk owns about 20% of Tesla shares and has borrowed against about half of that, so declines in TSLA stock price directly threaten his net worth; it is likely he used the proceeds of these loans to fund his other companies, notably SpaceX, the Boring Company (small-bore tunneling), and the Hyperloop efforts. A margin call that might result if his stock value declines enough to no longer cover the loan amounts would trigger large forced sales and a complete collapse of the stock price and his empire.

In order to induce the stockholders of Tesla to approve the purchase of Solar City, Musk emphasized its importance to Tesla’s long-term strategic plans of promoting solar as part of a mix including utility-scale batteries for load balancing and solar to replace fossil fuels and nuclear. This vision is premature since even in most favored areas for solar, solar plus battery for daily load balancing is impractically costly compared to gas-fired plants and a mixed strategy, and even that doesn’t address the yearly load balancing required.

The solar roof tile product was promoted to make buying Solar City seem a reasonable use of Tesla’s cash and equity. The fraudulent nature of the unveiling, presented as a product ready for customer deposits and installs, has been reported on but ignored amid the raft of glowing stories from credulous media. For example, this Fast Company story from 6-19-2017, “Inside “Steel Pulse,” The Project That Became Elon Musk’s Solar Roof”:

Tesla’s sleek new product helped clinch the company’s merger with SolarCity. We investigate its mysterious origin.

In late August 2016, Elon Musk went to check out the first iteration of his new “solar roof” product on a customer’s home. Musk has famously high product standards, but he needed this one in particular to be a stunner. The Tesla CEO was in the middle of pushing through a controversial, multi-billion-dollar acquisition of SolarCity, the company his cousins Lyndon and Peter Rive cofounded. This new offering would be key to selling Tesla and SolarCity shareholders on the merger. In fact, just weeks earlier, on an August 9 SolarCity earnings call, Musk hinted that a “beautiful” roof product would soon be unveiled, telling analysts that it would create a “huge market” for the combined companies. “What if we can offer you a roof that looks way better than a normal roof? That lasts far longer than a normal roof?” he teased. “Different ballgame.”

Yet internally at SolarCity, the solar roof product was far from what he would consider market-ready, let alone beautiful, according to nearly a dozen sources familiar with the project. In recent months, SolarCity had focused on developing a standing-seam metal roof with solar integration, code-named “Steel Pulse.” Whereas traditional solar panels are usually mounted on top of existing shingles, the basic goal of Steel Pulse was to make the roof itself solar powered, so it looked like a normal roof, yet generated electricity through embedded solar cells. Some employees felt Steel Pulse was unattractive, but the project’s leaders, including then-CTO Peter Rive, seemed keen on its aesthetics, and pushed ahead. The company found customers who were open to having the latest prototype installed on their Bay Area home, and when it was ready, Peter invited his cousin to see the metal solar roof in the wild.

Musk hated the implementation. According to two sources, after he arrived, he told Peter and other team members that they were wasting his time with this “piece of shit.” He demanded more “stunning” concepts and soon directed the team to pivot their focus toward a different style of solar roof—and fast. After all, Tesla and SolarCity shareholders would be voting soon on whether or not to approve the merger. Musk needed this new product to live up to the expectations he had set on the earnings call weeks ago.

…considering the timeline of Steel Pulse’s development with the SolarCity acquisition, some insiders have wondered if Musk sold shareholders on a product that didn’t exist. “It’s all about the narrative for Elon,” says a source close to Musk. “Solar Roof was as ‘real’ as anything he’s ever shown [off to the public]. Was it a finished product? By no means.”

The demo Musk introduced last October at a splashy presentation was a glass-tile solar roof, much different from the metal prototype he’d seen before. How did he pull off this transformation in just weeks? More to the point, who executed the idea and when? Leaders at Tesla and SolarCity, including Lyndon and Peter Rive, gave a variety of different answers on the timeline of its origin and development. At first, the companies said Solar Roof was a Tesla product, and then, later, a SolarCity product. Public statements are similarly contradictory. Some involved with the product’s development suggest that the mixed messages are a result of the combined companies’ wish not to appear as if they rushed out the glass-tile prototype in order to be able announce a high-profile product before the shareholder vote on the acquisition, which some critics viewed as Tesla bailing out SolarCity.

[Musk rejects a standing-seam metal solar roof developed by Solar City and demands a replacement that looks like conventional roofing tiles]

…Somehow, over the next few months, teams at SolarCity, Tesla, and 3M (which makes solar films that can be used for solar glass tiles) managed to put together a glass-tile solar roof demo, which Musk unveiled on October 28 at an event at Universal Studios’ back lot in Los Angeles, on an old residential set used in Desperate Housewives. Shortly before sunset, Musk appeared onstage in front of a crowd of several hundred to make his big reveal. “The houses you see around you are all solar houses. Did you notice?” he said, gesturing toward the homes with a grin. They appeared to have regular shingled rooftops, but Musk said they’d actually been retrofitted with a new product called the Solar Roof, a potentially transformative system that’s nearly indistinguishable from a traditional rooftop—and one, he promised, that lasts longer and costs less, all while generating electricity. “Why would you buy anything else?” he said. The crowd cheered.

Some people aware of Steel Pulse’s development at SolarCity were shocked by what Musk revealed. “Where the hell did that come from?” says one source, describing a common sentiment among certain teams at the time. Considering how different it looked from the standing-seam metal roof prototype, many sources concluded the demo was simply not real–it was merely vaporware. (As one jokes, “There’s a reason that they announced the idea on a fake block in a fake neighborhood with fake houses!”) A well-connected source explains, “Basically, from August to October, it was more about getting the thing to look right, and then from October until now, it’s really about getting the thing to work. This is just how Tesla does things. Their first car demo [for the Model S] was held together by magnets.”

…the company does acknowledge that the demos Musk unveiled at Universal Studios were not functional. …No matter how the Solar Roof came to be, it seems to have worked: Three weeks after Musk’s presentation, 85% of shareholders approved the Tesla-SolarCity merger.

The slick promotional material featured “photos” of a modern house with glossy solar roof tiles and a Tesla car in the garage — in a vision of a completely solar-powered yet stylish way of life for those wealthy and virtuous enough to choose it.

Tesla solar roof, Powerwall battery, and Tesla car mockup
Tesla Solar Roof PR Photo (photo Tesla)

The photo above has now been traced back to its source, a slightly-modified model of a modern house licensed and augmented with the Tesla features. There was no such house, and it seems unlikely any will be built anytime soon. The rendering is based on a Mascord software model modified and re-rendered; I assume Tesla licensed the model from Mascord, but I recognized the photo from its common use in Portland to market new homes. In other words, it was slapped together on short notice to market what didn’t exist.

Mascord Rendering “Norcutt”home

[The Mascord “Norcutt” house plan is pretty — see the source here.]

User “Justin” on Twitter found an ad for replan/rerender on some service like Fiverr, and commented: “Wow they bought the CAD file flipped, added some height to the entrance, and re-rendered it.”

So we now know Tesla’s solar roof tiles aren’t going to be going out to people who placed deposits on them this year, if ever, with a total of 12 installs (apparently 11 to Tesla execs.) The one install in public view took a large crew two weeks and the customer was charged about twice the cost of a standard solar setup. Tesla lost much more than that. The NY Gigafactory for producing them is mostly idle, and owes the state $100s of millions in penalties if it doesn’t employ 1500 people by deadline. The 8-7-2018 Reuters story, “Inside Tesla’s troubled New York solar factory”:

…Repeated hold-ups since the Buffalo, New York plant opened last year have forced Tesla’s partner in the joint venture, Panasonic, to seek other buyers for the components it had built to sell to Tesla, according to a Panasonic employee, a former Panasonic employee and a former Tesla employee. The issues have also rattled the faith of state officials in Tesla’s ability to deliver on investment and employment promises it made in exchange for $750 million in state subsidies.

The production challenges add to doubts over Tesla’s cash-strapped solar operations as it focuses on boosting production of its better-known electric vehicles, which have also seen repeated production delays. Tesla acquired the solar business in 2016 in a controversial $2.6 billion purchase of SolarCity – a sales and installation company founded by two of Musk’s cousins – but the business has been shrinking ever since.

…In a call with Tesla investors last week, Musk said “hundreds” of homes already had solar roofs, but the company clarified the estimate in its statement to Reuters, saying it included systems that had been partially installed or were “being scheduled for install.”

In California, the nation’s leading solar market, there were twelve Tesla roof systems connected to the grid as of May 31, all in Northern California, according to records from the state’s three investor-owned utilities. The cost per watt for those systems was listed at nearly $6, according to the records. That’s about double the national average for solar systems. [Ed. note: and the cost to Tesla of that install, which required a large crew working for two weeks, is likely many times what the customer was officially charged — see below.]

Tesla began accepting $1,000 deposits from customers for the Solar Roofs in May 2017, seven months after it unveiled a prototype.

Tesla confirmed in a statement to Reuters that it has been seeking to improve on its production process for the solar roof at the New York plant. “We are steadily ramping up Solar Roof production in Buffalo and are also continuing to iterate on the product design and production process,” the company said in the statement. “We plan to ramp production more toward the end of 2018.”

…Some New York state lawmakers worry Tesla may fail to hold up its end of the bargain. The state provided $350 million to build the factory, along with $274.7 million for equipment and $125.3 million “for additional specified scope costs,” according to a Tesla filing with the Securities and Exchange Commission.

The subsidy package requires Tesla to employ 1,460 people in Buffalo, including 500 at the plant, within two years of the facility’s completion, and to spend $5 billion in the state over a decade.

Empire State Development, the state’s economic development arm, is overseeing the agreement. The agency believes Tesla is currently meeting its obligations, said spokeswoman Pamm Lent, adding that the company would face penalties of $41.2 million a year if it falters.

Republican New York state Assemblyman Ray Walter, who represents a district near the factory, said it concerned him that only a small portion of the plant appeared functional when he toured it in March. “After investing $750 million of taxpayer money, we want it to work out,” he said. “It just does not look like it’s heading down that path.”

Tesla said in its statement that the facility now employs about 600 people and is on track to meet all of its commitments. None of the Tesla sources could provide a production figure for the solar roof, saying only that output was low and frequently interrupted. They said only the textured black version of the solar roof had been produced so far, one of four varieties Tesla is marketing.

EQUIPMENT IN BOXES
Panasonic recently produced about 1,900 conventional 325-watt solar panels per day at the plant, meant to be sold under the Tesla brand, and about 2,000 5.5-watt photovoltaic cells per day that were intended for the solar roof, according to two Panasonic sources, one who recently left the company.

That would put annualized production at about a quarter of Tesla’s target for the plant, which is 1 gigawatt per year by 2019. And Tesla isn’t buying most of the cells being produced, according to the Panasonic employee. … For now, wooden crates filled with unused equipment are sitting around the factory, according to the Panasonic employee and three other employees with knowledge of the plant operations. Some of that equipment has become obsolete over the past couple of years as technology has changed, two of the workers said.

MIXED REVIEWS
One of the few customers that has taken delivery of the Solar Roof is Tri Huynh, 39, who works in business development in Silicon Valley. Huynh said he paid about $100,000 for the system, which included three Tesla Powerwall home batteries to store the power produced. It took two weeks and a dozen workers to install, compared to a day for most traditional panel systems. “It’s fantastic. I love it,” he said, adding he was saving hundreds of dollars a month in power costs. “I’m a tech guy, so I kind of wanted the latest technology.”

Warren Jason, a retired technology entrepreneur who is building an 11,000-square-foot house in the Hollywood Hills, is not so pleased. He put down $1,000 to reserve a roof in early 2017 but it has not yet arrived, and he has been unable to get details to give to his architect and engineers. “We’ve been begging Tesla for information,” he said. “It’s been extremely frustrating.”

The solar roof tiles were a fraud, part of a scheme to defraud the market and Tesla shareholders by inducing them to commit resources to a dying company run by Elon’s family and friends. Musk is in big trouble now as the SEC examines his more recent Twitter claim of an offer to take the company private at $420 a share, but that has also focused attention on the smaller-scale frauds he has used to keep a narrative of constant innovation and disruptive products growing. As people who know the market areas for each of his supposed innovations compare notes, they are just starting to realize they all knew he was a fraud in the area they understood, but so long as he was apparently successful at promoting the dream no one had a reason to look more deeply at all the claimed new products. But now they do.

In coming days and weeks, the truth of his claims will come out. And it may signal the top of the most recent tech bubble which has tech giants’ stock prices inflated beyond reason. Most of these are real growth businesses that can actually make a profit without needing massive new cash infusions, but their stocks have been inflated by the prevailing atmosphere of easy credit and a steadily rising market. Being reminded to check sources and listen to contrary voices by a high-profile failure like Tesla’s can change sentiment for the whole market.

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