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is the tesla powerwall battery hype justified? - tesla, inc. …

by:GSL ENERGY     2020-06-09
We are a fan of Tesla cars. NASDAQ:TSLA).
While valuations are too high to be part of our portfolio, there is no doubt that the company has changed and is continuing to change the world of cars.
Tesla has done pioneering work in battery manufacturing, and currently produces some of the most efficient and cost-effective batteries.
This battery technology enables Tesla to offer the best cars on the market today.
As is widely expected, Tesla is now expanding its battery business beyond the automotive sector.
While Tesla\'s achievements are impressive, the recently launched battery product line Powerwall raises the question of whether the hype behind this product introduction can catch up with reality.
Some even compared the battery line to the birth of the iPhone, which is so hyped.
Should investors be excited about the hype this announcement brings?
Let\'s review some of the facts of the product, as well as an observation of the target end market of the product line.
At the prices introduced, these batteries create a new price point for home energy solutions, which does not surprise serious Tesla watchers.
Using Powerwall, it seems that the 10kWh Tesla battery can be installed in one
The inclusive price of the end user location is over $5000.
This is definitely lower than most common residential solutions, including solutions based on over time and inferior lead-acid technology.
In terms of price, it is safe to say that Tesla\'s solution currently has a significant cost/performance advantage in the residential market.
The key question to ask here is whether the difference in competitive prices is a function of equipment costs or a function of Tesla\'s pricing strategy.
We believe that today\'s battery pack market is very small and existing suppliers have priced their products for profitability in this low-capacity market.
While no one is arguing about Tesla\'s cost advantage today, we believe that the current pricing of the battery pack is more reflective of Tesla\'s pricing strategy than the relative cost advantage.
Can this pricing advantage last for Tesla?
We think the answer to this question may be more subtle than the outspoken \"yes\" or \"no.
\"We believe that although the cost structure of competitors may not be as low as that of Tesla, in the short term, competitors may match or approach Tesla\'s pricing.
The main driving force of cost advantage is the scale benefit advantage of automobile enterprises.
However, Tesla\'s scale benefits are unlikely to continue compared to today\'s peers, as other automakers are starting to become big consumers of batteries, driving the scale of some competitors.
The main problem here is nearby.
The nature of the battery business.
Batteries, although not the most strictly goods, alternative, cost-sensitive automakers will ensure that every penny of the cost is deducted from the battery pack at the appropriate time.
History shows that it is almost impossible to maintain any meaningful long-term development.
Long-term cost advantage of commodity business
In particular, large quantities like the battery business are about to become.
One sign of the lack of differentiated and meaningful barriers to entry is the crowding of storage space.
Key Competitors include ABB (NYSE:ABB), BYD (OTCPK:BYDDY), LG Chem (OTC:LGCEY), Panasonic (OTCPK:PCRFY), Samsung (OTC:SSNLF), Sharp (OTCPK:SHCAY), Siemens (OTC:SMQFY)
And countless startups pursuing new battery chemistry and architecture.
The only sustainable advantage in this type of competitive business is the brand.
We think this is positive for Tesla because the company has an early scale and considerable goodwill and is likely to be a leading brand in the industry.
From a manufacturing point of view, Tesla\'s Powerwall equipment supply seems to be very limited.
Although the product can be ordered now, it is expected to be only 3-4 months.
As far as Powerwall manufacturing shares resources with Tesla batteries, it seems that if any incremental battery resources are applied to Tesla batteries, it will pay more than Powerwall batteries.
A cursory look at ASPs should make it clear that the return on investment in the car will be much more than the return on investment in Powerwall per kWh of available capacity.
If the above dynamics remain the same, the Powerwall volume may be relatively low before the Gigabit plant is put into production.
If so, it is not clear whether Tesla will be able or will deliver a significant number of Powerwall products in the next 12 to 24 months.
While the company may take a rabbit out of the hat and surprise us, the impact of the Powerwall product line may be very limited before the Gigabit factory ramp.
Given the above, Tesla seems to have the initial cost advantage and brand advantage but not the ability to deliver.
Is this a problem?
To answer this question, let\'s consider the dynamics of the application space solved by Powerwall and look at the potential proximity
Market size.
So, what is the TAM of the problem Powerwall is solving?
Tesla claims: \"Powerwall is a home battery that uses the power generated by solar panels to charge, or to charge at a lower utility rate, to power your home at night.
It also strengthens your home from power outages by providing a backup power supply.
Powerwall is automated, compact and simple to install, providing the security of independence and emergency backup with the utility grid.
\"While it does sound like a big deal, in fact, the market for this application is closeexistent. In the U. S.
From the above situation, Tesla\'s statement has three components :-
Spare battery during power outage
Grid Independence (i. e.
Cut wires from utility suppliers)-
Energy arbitrage (i. e.
Store energy when the cost is low, use/sell energy when the cost is high)
For those who like the modern grid, just like most parts of the United StatesS.
What is the value proposition of the above vector?
What are the geographical areas of the United States? S.
Is the grid unreliable?
In areas where grid reliability is uneven due to snow, hurricanes, tornadoes or other disasters, is there a large number of applications?
We can think the market is very important.
But even so, it is important to understand the scope of the solution.
How big is this target market?
How about the services of these customers today? -
Power outages and backup power solutions that are widely used in today\'s market are generators.
Generators have been around for a long time, but there is a reason why the vast majority of Americans do not have generators.
For a relatively rare event, it doesn\'t make much economic sense to have expensive equipment. -
Customers can buy full-
Mature generators that are well below the cost of Powerwall.
Examples of battery prices can be found here. -
Due to the low cost and availability of natural gas, many generators use natural gas as raw materials.
These generators are connected to utility gas pipelines and can basically operate continuously through typical power outages.
For generators with large capacity, the energy costs generated can also be comparable to the cost of solar energy. -
The average consumption of most households tends to be several tens of kilowatt hours per day, and the 10 KW-hour Powerwall battery basically means that these batteries are for any other device hours in addition to temporary power outages that last for several hours.
The battery will run out in a few hours and will not provide any additional protection to the customer.
For those who care about meaningful power outages, the generator provides power for a long time. -
One can argue that the solar system can charge the battery, but this ignores regulatory issues related to the connection of the solar system powered by the battery to the grid. -
For customers whose power outage is a real problem, this generator has already appeared.
As a result, there is no big potential demand for Powerwall devices.
So, who will apply to buy this product for a power outage? Not many.
There will be an alternative market over time, and the market itself will expand as the cost of the solution decreases. -
The perceived advantage of Tesla partner SolarCity (SCTY)
In this regard, it is its financing.
Generator Companies, however, also offer financing, which reduces most of the expected benefits of this option. -
All in all, battery backup applications are unlikely to provide meaningful volumes for Powerwall class products in the near future and in the middle future.
For a large group of customers seeking emergency power, cheap generators may be more attractive than batteries.
Investors should also note that Tesla\'s battery technology is mainly for space (energy density).
However, space is not a key factor for residential applications.
In the long run, the cost and safety of household batteries may be optimized.
A company focused on residential batteries, not Tesla\'s car focus, may perform better in the long run.
In the context of the second benefit \"grid independence\" or the customer\'s departure from the grid, the battery is unlikely to make sense except for a very limited base.
To learn more about the topic in detail, readers can see our previous articles on the topic.
For solar customers with retail net metering, the grid is actually an infinitely large free battery.
Why is a grid
Customers who bind solar energy have unlimited battery resources free of charge and consider installing batteries?
The answer given by Tesla and its sister company SolarCity is \"cost \".
\"Claiming that solar cells may be a more cost-effective solution than the grid.
In fact, unless there are high fuel-cost areas like islands and remote areas, there is absolutely no economic significance for such a solution.
Even in areas with high electricity bills, Powerwall solutions make sense only if the climate is tropical or temperate.
In temperate regions, temperatures and temperatures fluctuate relatively gently, rather than extremely hot or extremely cold.
In these areas, changes between summer and winter are often mild, and energy requirements for heating or cooling houses are also low.
Without a mild climate, the peaks and lows of seasonal change and electricity consumption can be very high, making the storage required for the solar cell solution to be practical ridiculously high.
Once you see more seasonal climate in the mainland, if there is a possibility of multiple days of low sunlight, or if the winter weather is much shorter than the summer, the battery economy begins to fail miserably.
A mild climate is essential for any meaningful penetration of battery solar solutions.
Without this, the quality of service provided by the solar cell solution may be poor, close to third world countries.
In the current United StatesS.
In the background, Hawaii is one of the few places where such solutions are economically meaningful.
But even in an environment like Hawaii, the best solution is probably a solar generator (
Fossil fuels or organisms)
Instead of solar cells. Off-
Lithium is also needed for power grid solutions-
Ion batteries cycle frequently, greatly reducing the service life of these solutions, thus increasing the cost.
Customers can fix this by buying larger batteries, but doing so increases upfront costs and reduces the appeal of deploying these solutions.
From the customer\'s point of view, this basically becomes a proposition of \"I lost, you won.
Like backup storage, battery technology optimized for energy density is not necessarily off-grid markets.
To sum up, the \"grid independence\" market in the United States is likely to be restricted. S. context.
This solution may be more suitable for international markets where the climate is more moderate, where customers have fewer choices and generally receive low quality services.
Many markets are outside the core market of SolarCity.
However, Tesla can enter these markets through other channels.
This brings us to the third, or it may be near.
Long-term sales of these batteries
Energy arbitrage.
Battery storage systems are, by definition, used for arbitrage-
Store energy when it\'s cheaper, and recycle it when it\'s more expensive.
In order to make this arbitrage work, electricity will have to spend different fees at different time points.
Only in this case can energy be stored at cheaper times and discharged at more expensive times.
However, this energy arbitrage is not possible if the customer pays the same electricity bill 24 hours a day
This is true for the vast majority of residential electrical customers across the United States. S.
But energy arbitrage could work for consumers and businesses that pay for some kind of demand or TOU pricing.
Even in this problem space, the battery only makes sense when the benefits of arbitrage exceed the life cost of the battery solution
Cost and energy loss.
The back of the envelope calculation implies about $0. 10-
In addition, arbitrage is required for the work of the Powerwall system.
Given the current utility rate structure, there may be an important market for this type of energy arbitrage --
Especially in states that provide incentives for battery solutions.
We expect this type of peak cutting application to dominate the Tesla battery space in the near future in areas where utility pricing offers huge energy arbitrage opportunities.
However, investors should note that this market is highly speculative in the context of the emerging utility rate structure.
Utilities have learned tough economic lessons on how to leverage their rate structure and are better prepared to deal with the arbitrage threat of batteries.
However, it is not enough to be aware of this issue and be prepared for many utilities.
Utilities and PUCs, managed by strict regulations, have found that moving at the speed of technological development is almost impossible.
In this regulatory-driven world, utility companies may need years to deal with the threat of battery technology, which is also a major opportunity for Tesla.
Although it is impossible to quantify the size of this opportunity in the United StatesS.
The size of this opportunity may well exceed the size of the other two opportunities.
Tesla\'s claim does not cover another potential application of the battery.
This has to do with utilities that motivate battery deployment.
From a utility perspective, battery deployment decisions will be based on calculus of peak energy and how utilities are motivated to respond to peak energy requirements.
In theory, with the appropriate incentives, utilities make it possible for customers to deploy batteries cheaper than utilities that install new peak-value resources.
The real-world answer to this is complex and largely depends on the energy mix used by a particular utility in its energy mix.
If a utility or other entity pays the battery owner to reduce power fluctuations and peak power requirements, the adoption of the battery may take off to a large extent.
However, this requires regulatory action, before which there may be a controversial debate on the utility business model.
Our point: we see current and nearby
The long-term size of the Powerwall product line target market is extremely limited.
The future of the Powerwall product line is highly dependent on the actions of utilities and PUC.
We believe in utilities.
Interest will lead to a decrease in arbitrage opportunities over time, unless utility companies are motivated to take different actions.
As the saying goes, if all you have is a hammer, everything looks like a nail.
So there\'s no fault with Tesla\'s approach at the product launch, and every company has to look for ways to infiltrate solutions in the new problem space.
However, given the size of the market, we find that the excitement behind the release is more hype and hope than reality.
Disclosure: The author does not hold any positions in any of the stocks mentioned, and does not have a plan to start any positions within the next 72 hours.
The author wrote this article himself and expressed his views.
The author was not compensated (
In addition to Seeking Alpha).
The author has no business relationship with any company mentioned in this article.
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