Tesla is starting to actually become an energy company
The voice of Tesla CEO Elon Musk wavered on Tuesday afternoon onstage during the company’s shareholder’s meeting as he described “the most excruciating, hellish few months I think I’ve ever had.” He was referring to Tesla’s struggles to scale up production of the Model 3, a lower-cost, more mainstream electric car that will be make-or-break for Tesla.
Yet amidst the consternation over Model 3 manufacturing, Musk pointed to a bright spot for the 15-year-old company that makes and sells electric cars, batteries and solar panels: stationary energy storage installations.
Tesla sells batteries that are packaged up and wrapped with software and cooling systems that can be plugged into the power grid, paired with solar and wind farms, and used to store energy for buildings and homes.
During Tesla’s shareholder meeting held in Mountain View, California, Musk said that Tesla has just reached the milestone of deploying 1 gigawatt-hour (GWh) worth of energy storage. It’s a big deal for Musk’s company, and it represents a little less than half of all of the stationary energy storage deployed globally last year (a total of 2.3 GWh), according to GTM Research.
Musk also said that Tesla expects to deploy another GWh worth of energy storage in less than a year from now: “The rate of stationary storage is going to grow exponentially. For many years to come each incremental year will be about as much as all of the preceding years, which is a crazy, crazy growth rate,” Musk said.
Tesla’s milestone, and the predicted rapid growth of its energy storage division, highlights just how much the emergence of low-cost lithium-ion batteries are changing the way that energy is produced and stored. Tesla’s aim to operate as a full-fledged energy company, and not just an automaker, is finally starting to become a reality.
Battery boom
Tesla’s auto business still dominates its revenue, and its massive capital spending is also focused on its cars. Its energy storage business, however, is starting to scale. In its first-quarter earnings report, Tesla reported that its energy storage deployments grew 161 per cent from the previous quarter to 373 megawatt-hours (1,000 MWh = 1 GWh).
The Q1 2018 energy storage figures included 129 MWh of potential output from a huge project in South Australia that was installed in 2017 and that was just counted. The South Australian project – dubbed the world’s biggest lithium-ion battery – has a capacity of 100 MW and can quickly inject electricity into the South Australian power grid when it’s needed.
The region suffered from significant blackouts in 2016. Musk – a brilliant media-manipulating salesperson – bet South Australian policymakers on Twitter last year that he could build them a system that could solve their problems in 100 days or less or it’d be free. Tesla completed the system on time, and now the installation appears to be working well for the region.
A study done this year found that the South Australian project has been outperforming coal and natural gas power plants when it comes to the speed, agility and precision by which the battery can respond to grid instability. Musk noted this unique capability of lithium-ion batteries on the company’s earnings call last month: “[T]he battery is able to respond at the millisecond level, far faster than any hydrocarbon plant… utilities that we’ve worked thus far have really loved the battery pack.”
If the South Australian project is an indicator, utility deals could dominate Tesla’s energy storage division. And that’s a good thing for the company.
Utility projects are big, bring in sizable revenue, and are often built in remote or industrial regions. In contrast, selling battery packs to homeowners to use with solar panels is a much smaller sale, one that is more likely to carry a much smaller margin.
Storage to the rescue?
That said, Tesla’s energy storage division is still in a relatively early stage. According to the company’s past few earnings reports, the energy division, which includes energy storage and energy generation (its solar products), appears to be a pretty low-margin business at the moment. That’s expected to change as Tesla scales it up.
Tesla’s auto sales ($2.8bn for Q1 2018) will continue to dwarf the energy division ($410m for Q1 2018) for quite some time.
But Tesla’s energy storage boom stands in contrast to the results for its solar division, which continues to be an issue for the company. Tesla acquired sister company SolarCity in 2016 and soon started revamping the solar firm’s business model and products.
