Image source: Tesla Motors.

Elon Musk has grand visions of how his batteries could change the world of energy. A small plot of land filled with batteries could save the entire U.S. from fossil fuels, changing the course of humanity, as he said in a recent presentation.

To fulfill this dream, Tesla Motors (TSLA 2.96%) recently launched the Powerwall and Powerpack products, which brought to the forefront an energy-storage market that's been growing in the shadows for years. But to succeed, Musk and Tesla Energy need to be much more than just a battery company, or they risk being a commodity supplier into a high-tech industry.

Powerwall and the Model S. Image source: Tesla Motors.

The hidden side of energy storage
What wasn't discussed in Musk's Powerwall and Powerpack product launch was that the products were just batteries. The Powerwall, in particular, needs an inverter to work as an energy-storage unit in a home, which will cost around $4,000, plus installation. SolarCity (SCTY.DL) says that it will install a Powerwall unit with its solar systems -- which include inverters -- for $5,000; that should give you an idea of how much a single unit will cost. 

But a battery-storage unit is only as good as the energy-management system that will charge and discharge it when the economics are right. Without that, Tesla's battery is nothing more than a big expensive box on your wall.

How companies can make money off Tesla's batteries
The companies making money in energy storage today are primarily finding ways to lower demand charges for commercial and industrial, or C&I, customers. Unlike residential bills, C&I customers pay for the energy they use and their peak energy consumption, no matter how long it lasts. Reducing peaks in load, which may only last for a short time, can lead to significant savings.

This is exactly what companies like Stem, Sunverge, AES Energy Storage, and SunEdison's (SUNEQ) recent acquisition, Solar Grid Storage, are doing. But they use commodity batteries found on the open market, making them technology agnostic. 

A partnership Tesla announced with EnerNOC (ENOC) to provide the information layer between the battery and a customer's energy needs will add some of those capabilities. But I would argue that EnerNOC is the real value add in that relationship, not Tesla. EnerNOC could, and does, work with any battery system. 

On the residential side, SolarCity is using its Demand Logic software to control energy storage, although the details on how that will work are sparse. SunPower (SPWR 3.52%) has partnered with Tendril, and plans to offer multiple modes for customers using energy storage, like options to consume as much locally produced energy as possible, or automatically choosing the lowest-cost energy option. The software plays a vital role in making energy storage viable. 

The problem with Tesla's current model
Tesla's issue right now is that the battery isn't the value-added service in its current business model; it's just a commodity component. The real value is in the software that knows when to charge and discharge the battery, generating revenue or cost savings for customers. 

This is what companies like EnerNOC, Stem, SunPower, and even SolarCity are really selling to customers, not just a battery. In most C&I cases, they don't care whether the battery has a Tesla logo or is in a steel cage in the basement; they want to know how to make money off it. It's uncertain how Tesla will add that value outside of selling a battery on the C&I level, and in the residential space there are few places where an economic justification for energy storage can be found today. 

For Tesla to stay ahead of competitors in the battery market, they'll have to figure out how to add more value than just offering a battery.

Something more is coming
I'm not suggesting that Tesla's move into energy storage is bad, just that it has to add more capabilities to add true value to customers. If it doesn't, Tesla runs the risk of someone else adding the services that make energy storage valuable, and would be simply competing with other manufacturers on a battery's technology and price.

That's not where Elon Musk wants to be long term, so I would expect further technology, software, and revenue-generating services to be added as Tesla Energy's battery storage business unfolds. Those moves will be just as valuable, if not more so, than launching the battery itself.