On Thursday, Tesla Motors (NASDAQ:TSLA) CEO Elon Musk took the stage in Hawthorne, California, and boldly claimed the electric-car maker is ready to provide the missing piece in the solution to fast-rising CO2 emissions. The solution comes in two forms: a wall-mounted, solar-charged battery for home power use and an infinitely scalable battery system for business clients with large power needs. Already delivering more lithium-ion batteries than any other company in the world through the sales of its fully electric Model S, Tesla hopes it will drive more demand for its batteries by launching into the nascent energy storage business.
Tesla's energy storage
This new suite of batteries for homes, businesses, and utilities will help "wean the world off fossil fuels," Tesla asserts on its website. The batteries are meant to help manage power demand, provide backup power, increase grid resilience, and, perhaps most important, easily harness and use solar power.
Tesla describes its Powerwall, the company's energy storage solution for homes, on its site:
Powerwall consists of Tesla's lithium-ion battery pack, liquid thermal control system and software that receives dispatch commands from a solar inverter. The unit mounts seamlessly on a wall and is integrated with the local grid to harness excess power and give customers the flexibility to draw energy from their own reserve.
The Powerwall comes in two configurations: a battery with a 10-kilowatt-hour capacity designed for weekly cycles and a 7 kWh version designed for daily cycles, priced at $3,500 and $3,000, respectively. Up to nine of either battery can be installed together, providing up to 90 kWh capacity with linked 10 kWh batteries or 63 kWh capacity with linked 7 kWh batteries. Key to the Powerwall's value proposition, it comes with a 10-year warranty. Dividing the price across the 10-year warranty, a Powerwall costs just $25 to $29 a month.
Tesla's Powerpack, aimed to support power needs for businesses with larger demand than 90 kWh of capacity for weekly cycles or 63 kWh of capacity for daily cycles, offers far more energy storage. Designed to scale infinitely, the Powerpack is a 100 kWh tower available in a minimum of 500 kWh capacity groupings. Musk even referenced the possibility of gigawatt-hour class installations or larger, noting that Tesla could power a whole city the size of Boulder, Colorado, with a GWh installation. Tesla already has one utility that wants to do a 250 megawatt-hour installation with the Powerpack, Musk said.
While Tesla's battery storage can play a crucial role for utilities by helping them manage power and increase grid resilience, the technology, when paired with solar panels, can also enable grid independence.
"You can actually go, if you want, completely off grid. You can take your solar panels, charge the battery packs, and that's all you use," Musk said during the keynote address.
While this possibility might be irrelevant for developed nations with established power lines, it opens up key opportunities in markets where communities are underserved or have no access to electricity yet.
"What we'll see is something similar to what happened with cell phones versus landlines, where the cell phones actually leapfrog the landlines and there wasn't a need to put landlines in a lot of countries or in remote locations," Musk predicted during the event. "So, people in a remote village or an island somewhere can take solar panels, combine it with the Tesla Powerwall, and never have to worry about having electricity lines."
Bringing the energy storage to market
Tesla will begin shipping the Powerwall in approximately three or four months. It is already available for reservation on its website.
With battery packs initially produced in Tesla's Fremont, California, factory, where the Model S is manufactured, the initial ramp-up in production for Powerwalls and Powerpacks will be slow. But Musk said the ramp-up will be "much, much higher" next year as Tesla transitions to the under-construction Gigafactory in Nevada, which is scheduled to begin first cell production in 2015.
If Tesla's energy storage business builds momentum, the additional business will lower risk for investors. Currently, Tesla's business is virtually completely dependent on sales of fully electric vehicles. Investors, therefore, will undoubtedly keep a close eye on this segment as it develops.
In the near term, Musk said in a press conference before the Thursday event that he believes Tesla's energy storage business will have low profit margins by the fourth quarter of this year and be materially profitable by next year.
Longer term, Musk has said he expects energy storage to eventually account for one-third of the Gigafactory's cell production. The Gigafactory is purposed to produce 35 GWh of capacity annually by 2020. Looking even further into the future, Musk said be believes demand for energy storage will be a key catalyst for "many" more Gigafactories as the world transitions away from fossil fuels to a sustainable-energy future.
Investors, of course, should keep in mind the speculative nature of Tesla's new business. The market for energy storage is new and mostly unproven. While the goal of energy storage -- to help transition the world to sustainable power and save customers money -- is compelling, such bold aspirations are easier in theory than in practice.