What Does A Partnership With Tesla Mean For Home Depot?

by Trefis Team
Home Depot
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Tesla has made a deal with Home Depot (NYSE:HD) to sell its rooftop solar panels and Powerwall, a battery it designed for homes that stores the energy generated by solar panels, in the latter’s stores. This news was first reported in Bloomberg, which stated that the electric car company will set up Tesla-branded kiosks in over 800 Home Depot stores, which will be staffed by Tesla employees who will demonstrate the products. Solar City, the solar energy company Tesla acquired, had a similar relationship with the home improvement company for a number of years. While the performance of Tesla’s solar operations has been mixed in recent quarters, this step reflects a change in focus of the sales and marketing model used for this division. For Home Depot, on the other hand, this deal indicates its desire to remain relevant with the changing technological advances.

We have a $187 price estimate for Home Depot, which is below the current market price. The charts below have been made using our new, interactive model. You can click here to modify our driver assumptions to see what impact it will have on the company’s revenues and price estimate.

Slowdown In The US Residential Solar Market May Have Prompted A Change In Focus

Demand growth in the once-booming rooftop solar market in the United States appears to be leveling off, despite a reasonably healthy real estate market and strong consumer sentiment. After an exceptional 2015, and a strong 2016, the residential solar market in the US is expected to note a contraction in 2017 (details are yet to be reported). In the third quarter, the market installed 2,031 MWdc of solar PV, a 51% decline over the corresponding quarter of the previous year. Up till the end of Q3, installations were tracking 22% behind the rate set during the same period in a record-breaking 2016.

Utility companies have been pushing back against residential solar in multiple states, citing the higher effective costs of catering to customers with residential installations. In states such as Nevada, residential and small-scale commercial solar users face higher electricity rates, along with reductions in the credits they receive for sending their unused solar-generated electricity back to the grid. Average residential electricity rates in the US have also softened on account of cheaper fossil fuels (particularly natural gas). This has reduced the economic incentive for customers to go solar.

However, the outlook may still be bright for this market. Solar panel prices have been declining rapidly, and the overall cost of systems is also coming down, due to higher panel efficiencies and lower balance of systems costs. Easy to install pre-engineered systems are also helping to bring down the time of installation and labor costs. Moreover, the dependence of residential solar customers on the grid and policies such as net metering could come down going forward, as behind-the-meter storage becomes more affordable and efficient with improving battery technology. This should provide a boost to Tesla’s solar revenues. Furthermore, the shift in the sales and marketing strategy, by ceasing Solar City’s aggressive door-to-door sales model and focusing on showcasing solar panels through Tesla showrooms and Home Depot stores – which are located in high-visibility areas – could prove to be effective. Meanwhile, for Home Depot, this strategy may give an upside to its revenue per square foot, given the high prices of the solar products, if Tesla actually starts selling its products at their stores, instead of just providing demonstrations, as it does currently. According to Tesla’s website, the average cost of a solar panel varies between $10,000 and $25,000, with an additional $7,000 for the battery, while the Tesla Solar Roof retails for about $52,000.

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