Tesla recently announced they are going to be selling their new Tesla Solar Roof, which is basically solar cells disguised as everyday shingles to collect electricity without looking like a solar roof. Their estimate of cost savings bothers me though, so we need to look at the estimate a little closer to properly evaluate whether the Tesla Solar Roof really is a good deal.

## The Tesla Solar Roof savings according to Tesla

I visited the Tesla Solar Roof website and entered some basic information. It only took about a minute and here is the estimate they gave me:

To summarise the estimate it basically says I will need to pay $61,000 for a Tesla Solar Roof and a Powerwall battery. Buying these 2 things will give me a tax credit of $13,700 and then over the next 30 years I will save $50,400 in electricity. Put this all together and it nets out to a savings of $3,100 over the next 30 years.

## 6 Problems with the estimate

### 1. Some of the benefits are impossible to estimate the value of

There are some very real benefits both to you personally and to the rest of the world for you to have a solar roof and Powerwall battery that are impossible to properly value. Ever been without power? It sucks. Your home becomes basically unlivable if it is too cold outside, all your refrigerated food is ruined, and in general life becomes very difficult. Of course you could just get a simple generator for a couple of hundred dollars off of Amazon (affiliate link) that will produce enough power to heat your home and run your refrigerator, but with a solar roof and Powerwall battery your whole house will be up and running while all your neighbors try to figure out how they will survive. While that is very valuable, it is hard to put a price tag on, so that hasn’t been included as a benefit in this estimate.

It almost goes without saying that solar power is good for the environment, but once again the value of this to you is impossible to reasonably estimate so it has not been included as a benefit in this estimate.

### 2. It doesn’t include the benefit of added value to your home

Having solar power makes your home more attractive to potential buyers who will know that after they buy your home they get all the cost savings from not paying monthly electricity bills.

According to Berkeley Lab’s 2011 study solar power raises the average home value by $17,000. I can find no estimate of how much a Powerwall battery will raise your home’s value, but let’s say it is about half of the original cost, or $3,000. That will bring the increase in your homes value to a total of $20,000. This is a very real value that wasn’t included in Tesla’s estimate.

### 3. You’re probably not going to get that tax refund quite as quick as you think

I hope you’re not day dreaming about how sweet it is going to be to get a check from the IRS for $13,700, because the truth is a little more complicated than that. It is true you can get a 30% income tax credit for installing solar energy. But this is a non-refundable credit, not a refundable credit. That means the IRS will only use this credit to reduce your tax liability to zero. It will not write you a check for a larger than the amount of taxes you have already paid in for the year. To get the full amount of the credit in one year you would have to make $72,000 after all deductions per year if you are single or $89,000 after all deductions if you are married. These numbers are significantly above the national average income.

If your tax liability is less than your energy credit then the remaining amount will be rolled forward to the next year, so you will get it eventually, but maybe not as quickly as you want it.

I have come up with a clever trick to get around this and get all the benefit in the first year, but it’s a little complicated and will take up too much space to explain it here. Check back next week. You could also enter your email in the box on the upper right hand side of this screen to sign up to receive all ABC articles through your email.

### 4. It doesn’t account for interest cost

Not a whole lot of people have an extra $61,000 laying around they can afford to sink into a solar roof right away so many people will have to take out a loan to pay for this. Even if you can afford to just right a check for that amount, that money shouldn’t be considered free. There is an opportunity cost in using this money for a solar roof versus putting it into another investment. In either case, the cost of the money used should be considered, but is not in Tesla’s estimate.

### 5. For people who need a new roof, the effective cost should be adjusted.

Is your current roof just fine? In that case your decision is between a $61,000 solar roof or a free regular roof and $61,000 should be considered the real cost of the roof.

But what if you need a new roof anyway and a regular roof will cost you say $8,000? In that case your decision is between a $8,000 regular roof or a $61,000 solar roof. In that case the solar roof only costs you an additional $53,000 over the regular roof. That should be factored into your decision.

### 6. The biggest problem- no reasonable person would use “Net earned over 30 years” as a metric

The biggest problem with this is no reasonable person would look at a 30 year period of time when they evaluated an investment. It is just far too great a period of time. Very few people will still be in the same house in 30 years, and looking that far ahead in to the future it is just impossible to predict what the world will look like then. What are the chances that new technologies by then could make your Tesla Solar Roof completely obsolete? Maybe not 100%, but close too it.

The proper metric to use is the payback period. This metric is often used in artofbeingcheap.com articles, but if you are new to the ABC, it just means the amount of time it takes for all the benefits of a choice to add up to exceed all the costs of a choice. A good payback period would be 3 years. Most financial experts recommend your payback period be no more than 3 years when you refinance a loan for example. I would say for many investments stretching things out to a 5 year payback period would be a perfectly reasonable decision.

## Let’s calculate the payback period

First let’s calculate the payback period for people who don’t need a new roof. For purposes of calculating the payback period I started with Tesla’s estimate, then I also included the cost of the loan. I assumed a 10 year loan at 5.25% interest rate. I came up with a payback period of 27 years. After 27 years here are the estimates of all the benefits and costs:

Totals after 27 years | |
---|---|

Tax credit | 13,700 |

Energy savings | 45,360 |

Increased home value | 20,000 |

Total benefits | 79,060 |

Less loan payments | -78,480 |

Net Benefit | 580 |

That isn’t good. 27 years is a lousy payback period. If you were going to have to get a new $8,000 roof anyway things are just a little bit better at 23 years:

Totals after 23 years | |
---|---|

Tax credit | 13,700 |

Energy savings | 38,640 |

Increased home value | 20,000 |

Total benefits | 72,340 |

Less loan payments | -78,480 |

Net Benefit | -6,140 |

Add: Cost of normal roof | 8,000 |

Adjusted Net Benefit | 1,860 |

A little bit of an improvement, but still not near enough I am afraid. This calculation was for my set of facts and assumptions which will vary somewhat from your sets of facts and assumptions. Even taking that into account it is still difficult to imagine what set of circumstances would lead to solar roofs making sense from a purely economic perspective. I love the idea of solar energy, so it pains me to have to conclude that the Tesla Solar Roof does not make economic sense for individuals right now. At some point in the future, I expect efficiency will improve enough that my answer will change.

More information can be found at Tesla’s website.

Photo is by Elias Gayles and has been modified.

Great analysis. My buddy is actually in need of a new roof, but he ran into the same issue, when you look at all the factors they can be quite expensive.

It would be great to have a power producing roof, but it’s by no means a slam dunk in the price vs. conventional materials. But it is better for the world.

Thanks for taking the time to put the post together!

Buck