Tesla Motors (TSLA 0.38%) CEO Elon Musk is at it again Tuesday on Twitter. In a pair of tweets, he all but gave away the "major new Tesla product line" the electric-car marker is scheduled to unveil on April 30. On Monday he teased a product unveil that is "not a car." But today the CEO seems to basically be giving away the announcement.
After Musk said in February during the company's fourth-quarter earnings call that Tesla would be launching a home battery to be paired with solar panels for storing electricity, investors were already speculating that he was referencing this home battery in his tweet on Monday. Musk's tweets on Tuesday suggest the speculation is likely spot on.
"SolarCity just hit a new daily energy record of 5GWh two weeks after reaching 4GWh," Musk tweeted Tuesday morning. A few minutes later, the CEO followed with another tweet:
With all that solar power being generated, it almost feels like something is needed to complete the picture ...
— Elon Musk (@elonmusk) March 31, 2015
Tesla's under-construction Gigafactory, a factory purposed to produce more lithium-ion battery capacity per year by 2020 than the entire world produced in 2013, is scheduled to begin its first cell production in 2016. With Tesla predicting approximately a third of its Gigafactory battery production will go toward stationary energy storage, Tesla is likely hoping its home battery becomes one of its key product offerings in the new segment.
In Tesla's most recent quarter, automotive sales contributed 100% of the company's revenue. Launching a home battery product line would put the company in an entirely new segment.
Is a foray into energy storage actually good news?
After Musk's tweet on Monday, the company's stock popped about 3%. Investors were clearly pleased to hear Tesla has another product line ready. But Bank of America Merrill Lynch analysts John Lovallo and John Murphy, who have a 12-month price target of $65 for Tesla stock, believe a foray into energy storage is "a long-shot at best."
Here's an excerpt from a new report (via Barron's) that the Bank of America analysts shared with clients this week.
As we have written about on numerous occasions, most recently in the context of our A spoon full of sugar report, we believe a potential market for residential stationary storage is even further down the road than Tesla's 2020 target for profitability. In fact, payback periods are well beyond what most consumers would likely consider, and Tesla will not be alone if demand does ever materialize. It is also unclear to us whether Tesla's batteries would be optimal for storage applications. Perhaps most importantly, few, if any companies in this industry consistently earn their cost of capital and generally command much lower valuation multiples than those enjoyed by Tesla. In other words, we think investors should perhaps be careful what they wish for.
Notably, however, strictly looking back to predict the future of energy storage ignores the fast-changing landscape for energy storage. Globally, about 46% of newly installed generation capacity in 2013 was renewables, Renewable Energy World reported earlier this year. The more generation capacity supported by renewables, the more crucial energy storage will be. Furthermore, Navigant Research recently predicted that stationary energy storage global revenue will increase from $675 million in 2014 to $15.6 billion in 2024.
"The grid-scale energy storage market continues to develop in a piecemeal fashion, but there are signals that it is poised for significant expansion in the coming years," Navigant Research senior research analyst Anissa Dehamna said in a September report last year. "In particular, after several years of faltering growth, lithium ion batteries are emerging as the breakout technology in this sector."
Solely looking back to examine the potential for energy storage in the future fails to consider Tesla's Gigafactory's future impact on lithium-ion costs -- not to mention prices for solar systems falling by about 10% per year, driving demand for stationary storage. With first cell production in Tesla's Gigafactory scheduled to begin next year, Tesla and its battery partner Panasonic continue to insist that its goal to reduce lithium-ion costs by 30% by bringing unprecedented economies of scale to the industry is based on conservative assumptions.