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2 Important Long-Term Opportunities for Tesla Motors That Have Nothing to Do With Cars

By Evan Niu, CFA - Jan 24, 2016 at 10:00AM

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Investors expect an awful lot from Tesla in the years to come. Here are a few ways that the company could live up to those expectations.

Tesla Energy's Powerwall is just the tip of the iceberg. Image source: Tesla.

If you look at Tesla's (TSLA -2.44%) valuation compared to traditional automakers', it looks downright ridiculous at times. The current valuation levels price in significant growth expectations, which is often what attracts the skeptics since Tesla's current levels of vehicle production pale in comparison to the rest of the industry. Tesla earns this valuation in part due to its disruptive technological nature, which also gives it tangential opportunities that aren't available to traditional automakers. It might not always be just about electric cars.

Let's talk about two of these opportunities. One is already known and relatively straightforward, while the other is entirely speculative.

Tesla Energy
The company announced Tesla Energy last year, with the subsidiary's first products being the Powerwall and Powerpack. As Tesla continues to work on its Gigafactory, it will ramp battery production capacity to unprecedented levels since the Gigafactory's expected production capacity for 2020 will exceed 2013 global production capacity. Tesla has just begun shipping Powerwalls to consumers in limited quantities.

One of the most common criticisms of the Powerwall is that the economics for U.S. consumers don't always work out well. Earlier this month, the Institute for Energy Research released a study estimating the payback period of nearly 40 years, although some of its assumptions were questionable.

Either way, Elon Musk even acknowledged at the 2015 annual meeting that the economics aren't great in a lot of cases for U.S. consumers for the 7 kWh daily cycler, since most consumers pay a flat rate or something comparable to a flat rate. However, in many other countries like Germany, Australia, or the U.K., the Powerwall makes a lot more economic sense.

Visualization of a utility deployment of Powerpacks. Image source: Tesla.

Even this all misses the point. Musk also noted that Tesla expects 80% of total sales to be for the Powerpack, which is the scalable 100 kWh system intended for businesses and utilities. This is where the real opportunity lies. And battery costs should also continue to come down, making the economic case stronger over time.

Tesla Energy VP Mateo Jaramillo gave a presentation last week about where this business is headed, highlighting what the Powerpack can do in countries that don't have mature energy infrastructure: "We see very big opportunities in microgrids in emerging markets. We have already started up our efforts in Africa. In fact, we have an effort currently under way in South Africa and we will use that as sort of launching pad for the rest of the continent."

Other types of transportation
Let's jump into the completely speculative idea now. Tesla's mission has always been to catalyze "sustainable transport." Musk believes that eventually all forms of transportation, other than rockets, will inevitably need to transition to fully electric as well. To be clear, Musk has enough on his plate right now, focusing on ramping up Model X production and deliveries while developing the critically important Model 3 (which requires a fully operational Gigafactory).

But consider an extremely long time horizon of perhaps 20 years or more. If all types of transportation including things like large service vehicles, airplanes, ships, and other types of vehicles eventually go electric as well, it's not too much of a stretch to think that Tesla could be interested in tackling those areas as well as part of its broader mission.

Make no mistake, Musk already has "a design in mind" for a supersonic electric aircraft that takes off vertically. And no, I'm not talking about his brief cameo in Iron Man 2 where he references an electric jet. That quote is from a recent interview on Marketplace. Whether or not he ever acts on it (or does it at Tesla) is a different question altogether.

Since Tesla and SpaceX are sister companies that borrow technological innovations from each other, it stands to reason that Tesla could conceivably apply some of SpaceX's aerospace knowledge to larger vehicle ambitions beyond cars. Again, this is an idea that would be decades away at best, but Fools are known for our rather long time horizons.

Evan Niu, CFA owns shares of Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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