Tesla Powerwall Picture in background. Image source: Tesla Motors.

On April 30, Tesla Motors (NASDAQ:TSLA) CEO Elon Musk announced the company's hotly anticipated plan to enter the energy storage business by utilizing its automotive-class lithium ion batteries for energy storage in the residential, commercial, and utility power markets.

The announcement also gave birth to Tesla Energy, which will initially offer two products: Powerwall for residential installations in seven- and 10-kilowatt-hour varieties, and Powerpack in 100-kilowatt-hour towers for commercial and utility installations that can be scaled to over 10 megawatts -- enough to power approximately 1,600 homes in the U.S.

Powerwall and Powerpack aim to offer reliable energy storage for a host of different uses, including buying and storing electricity from the grid when it's cheapest, storing solar energy for a later use when the sun isn't shining, providing backup power, and being able to sell excess electricity back to the grid.

Image source: Tesla.

Ultimately, with Powerwall and Powerpack, Musk is hoping that it provides a clear path for humanity to reduce its reliance on fossil fuel by making it easier to store and distribute renewable energy sources.

Although Musk did an excellent job selling this as a noble cause with a tremendous addressable market, the truth is that Tesla faces fierce competition in energy storage.

Energy storage isn't a new idea
To paraphrase my colleague Travis Hoium, the energy storage market has been growing in the shadows for years. Stem, Sunverge, AES Energy Storage, and SunEdison all offer energy storage solutions in commercial and industrial markets.

Going a step further, a quick Web search reveals there are numerous others companies doing business in all segments of the energy storage market, including General Electric, Alevo, JLM Energy, and SolarGrid.

At this point, it's reasonable to wonder how Tesla can stand out in a industry that often relies on commodity products for energy storage.

The missing piece
During the Powerwall launch event, Musk took issue with existing batteries for energy storage, and candidly explained, "The issue with existing batteries is that they suck -- they're really horrible."

Musk then showed the following slide, which lists a host of issues plaguing existing energy storage batteries:

Image souce: Tesla Powerwall launch event video.

According to Musk, "There's not one integrated place you can go and buy a battery that just works, which is what people really want to buy." Musk called this shortcoming "the missing piece," which is exactly how Tesla's Powerwall and Powerpack are being positioned.

In other words, the biggest difference between Tesla's battery storage and competitors' is that it's being billed as streamlined energy storage solutions that are practically no-fuss after installation. The Powerwall, for instance, is a wall-mounted unit that can be hung outside, eliminating the burden of needing a "battery room."

Off to a promising start
In less than a week of being open to reservations, Tesla Energy received 38,000 reservations for the Powerwall, 2,500 for the Powerpack, and 2,500 requests from companies that want to distribute and install Powerwalls and Powerpacks. The demand was so robust that Tesla's battery storage products are now sold out until the middle of next year.

In total, Musk estimates the 38,000 Powerwall reservations will translate to about 50,000 to 60,000 Powerwalls being sold, and 2,500 Powerpacks will sell 25,000 Powerpacks. At a cost of between $3,000 and $3,500 per Powerwall and $25,000 per Powerpack, Tesla stands to generate up to $835 million in revenue from these initial reservations -- or about 15% of its 2015 sales estimates.

Between the initial response and high-profile companies like Wal-Mart, Amazon.com, and Target piloting Powerpack installations, it's possible that concern about Tesla's competition in battery storage is being overstated.

After all, according to Bloomberg New Energy Finance, by 2020, global investment for stationary-grid energy storage is expected to be worth $5.1 billion, a 17-fold increase from investment levels in 2013. It's entirely possible that the market for energy storage will grow large enough to accommodate multiple players, including Tesla.

Looking ahead, as Powerwalls and Powerpacks get into the hands of customers later this year and early next year, it'll validate whether Tesla's claims that they're "the missing pieces" in energy storage is true.