Elon Musk is a huge supporter of energy storage. He says demand for Tesla Motors' (NASDAQ:TSLA) energy storage products is strong and the company has big plans to take a major share of this potentially massive business. In the third-quarter shareholder letter, he said production of Powerpacks and Powerwalls is moving to the Gigafactory as we speak, with deliveries from the facility expected in early 2016.
While Tesla gets a lot of hype about its energy business, energy storage isn't something Musk saw coming before everyone else. Large industrial companies such as General Electric, Samsung, and even Volkswagen have had their eyes on energy storage for years, biding their time until a market for the products developed. But it may be German competitor Sonnenbatterie that Tesla should have its eyes on most.
Who is Sonnenbatterie?
Sonnenbatterie is a growing residential and commercial energy storage business in Germany, where energy storage has market demand because solar feed-in tariff rates are below electricity prices. It's installed over 8,300 systems in homes and businesses in Germany since being founded in 2010. And it supplies not only energy storage but also energy management software that makes it potentially viable to go off-grid completely.
While Sonnenbatterie has been focused on building out a business in Germany, it's taken some shots across Tesla's bow that should give investors a little reason to pay attention to them as a threat.
Tesla is losing key employees in Europe
One of the notable news stories about Tesla Energy to come out recently was news that Sonnenbatterie hired away Tesla's head of operations in Germany and another seven leaders of the German team followed as well. This comes ahead of a major announcement from Sonnenbatterie on Nov. 25, expected to be a product that will answer Tesla's entrance into the market.
Sonnenbatterie also partnered with Sungevity earlier this year, a residential solar company that's one of the top five installers in the United States. This gives a small foothold in the U.S., which so far doesn't have much of an economic drive for energy storage in the home.
As markets such as Hawaii and California change net metering rules, we could see Sonnenbatterie encroach on regions Tesla Energy has said it will hit hard. There may be a lot more players than you think battling for the future of energy storage.
Competition is coming
Tesla Motors has enjoyed relatively weak competition in electric vehicles, because larger automakers have been behind the curve in building EVs. But in the case of energy storage, Tesla is at best on par with competitors such as Sonnenbatterie. And the fact that employees are leaving to go to the German company can't be a good sign for the business.
The bigger problem is the money Tesla is spending to build out capacity before demand is here. About 1/3 of the 35 GWh Gigafactory is earmarked for energy storage. And GTM Research is expecting U.S. and Australia's energy storage demand -- two of the largest markets in the world -- to be 1.1 GWh by 2020. Even if Germany alone matched that demand it would only be about 20% of the capacity coming out of the Gigafactory alone. Add capacity being built by dozens of competitors and the market will likely be oversupplied for years to come.
While Telsa's investment in building out energy storage capacity has a lot of potential, it's unclear whether the company can actually make money in energy storage. Batteries haven't typically been a high-margin business around the world, and competitors are already staking their claims to the high-potential energy storage market.
You may not have heard of Sonnenbatterie until now, but it's a company to watch as a threat to Tesla Energy in the long term.