Tesla (NASDAQ:TSLA) will have an announcement related to its energy storage business later this year, Tesla CEO Elon Musk said during a press conference following a tour of the Gigafactory last month. His statement deflected my inquiry during the Q&A about whether he could talk more about the demand and customer feedback the company is seeing for its energy storage products. At the time, it wasn't exactly clear why he referred to an upcoming product announcement when asked to describe the demand for Tesla's energy storage products.
But Tesla's earnings call seems to provide some more context for his response: Tesla expects its next-generation energy storage products to drive "ballistic" demand -- so much so that demand will be the last concern anyone has about the company's energy storage segment, Musk seems to suggest.
Next-gen Tesla energy storage
"We've got some next-generation technology," Musk said during the company's second-quarter earnings call. Production is going to be "heavily concentrated in Q4 and probably even heavily in November and December," he continued, implying the next-generation technology would be launched before the year ends. "I think it's going to be really exciting when people see it. So, that's why I expect kind of exponential growth from there. I think it's really going to go ballistic."
Interestingly, the implied timing of this new product's launch coincides with Tesla's attempt to finalize its acquisition of solar panel company SolarCity (NASDAQ:SCTY.DL). SolarCity's 45-day "go shop" period in which the company can solicit alternative proposals from potential buyers ends in the middle of September; and Tesla expects to close the deal during the fourth quarter.
Tesla and SolarCity both have voiced plans to build new energy-related products in the near future -- both as a combined company (if the acquisition closes) and separately. Tesla said in its July update to its master plan the company wants to create an integrated solar and battery product if it is able to combine the two companies. And SolarCity recently said it plans to release two new products in the second half of the year that can drive demand for its solar panels meaningfully higher.
However, it's likely any announcement of an energy storage product from Tesla later this year won't be the seamlessly integrated solar and energy storage product the company envisions in a post-SolarCity acquisition era. The combined entity would likely need more time to come up with this totally integrated product. But it's possible the new energy storage product could make integration with solar technology much easier. Similarly, SolarCity's upcoming products could also make integration with battery storage easier. In other words, the two company's upcoming product announcements could be a first step in the direction of a combined company.
Meanwhile, Tesla is still supply constrained
As Tesla preps its next-generation energy solution -- whatever that may be -- Tesla Energy has enough on its plate. Musk emphasized both in the press Q&A at the Gigafactory and the company's August 3 earnings call that its energy segment is currently supply constrained, even as it begins to streamline production at its Gigafactory.
While Tesla didn't provide specific numbers on the company's energy business in its Q2 update, it did provide an optimistic overview of the segment in Q1.
Tesla Energy posted strong growth in the quarter as well. During Q1, we delivered over 25 MWh of energy storage to customers in four continents. We delivered over 2,500 Powerwalls and nearly 100 Powerpacks in the quarter throughout North America, Asia, Europe and Africa.
Overall, management seems to believe Tesla energy will be supply constrained for the foreseeable future. And Musk has specifically said he expects demand and deliveries for its energy products to increase exponentially. But investors should keep in mind that Tesla's energy segment likely represents around 2% or less of sales. So even with exponential growth in the segment, it will take time for Tesla Energy to represent a meaningful portion of the company's business -- especially when Tesla also anticipates its automotive deliveries will increase from about 51,000 deliveries during 2015 to around 500,000 units during 2018.