Tesla Motors is dead. Long live Tesla Inc.!
Yesterday, Tesla Motors Inc. dropped the “Motors” part of the name, and it reflects Elon Musk’s efforts to steer his company into what is going to become an integral part of energy production for decades — if not longer — to come.
That isn’t to say that its car business is in trouble. In fact, the exact opposite is true. Third quarter sales put the Tesla Model S above its next two competitors combined:
The Tesla X SUV is up to 6% market share, while we’ve yet to see anything of the Model 3, other than incredibly strong preorder and deposit demand.
Orders ran at an all-time high during the fourth quarter, but the company fell short of its goal of delivering 80,000 vehicles for the year. Still, sales rose another 27% overall for the quarter, year over year.
These are good figures, and show that Tesla may be the only company dedicated to electric cars that can actually pull it off. This is especially true with Faraday, backed by wads of Chinese cash, announcing a drastic scaling down.
So why not double down on the “motors” aspect, when things are going so well?
The answer there is simple. There is a much bigger prize to fight over right now, and Tesla is neck-and-neck with two competitors with the first big wave of growth.
Millions and Millions of Tiny Batteries
Tesla’s $5 billion factory in Reno, Nevada is only partly designed to secure high-volume, high-quality power storage for its vehicles. The end goal is to provide scalable storage for just about everything.
If you haven’t seen the batteries in a Tesla car, here is a look:
Look kind of familiar? It should. That is essentially the world’s largest bulk package of regular size batteries you can buy, all strung together.
Pop open Tesla’s Powerwall home electrical storage system and you’ll see the same thing.
And pop open one of these large boxes, and it’ll be the same thing once again:
What you’re seeing here is Tesla’s newest project, a battery power plant. The company completed it in only three months, stringing together millions and millions of batteries to meet an urgent demand in California.
After the massive methane leak in Los Angeles that went for months before being capped a year ago, Southern California Electric rushed to deploy energy storage deals to alleviate the risk of winter blackouts.
Tesla’s battery power plant is one of three that have been built, with the other two coming from AES Corp. and Altagas Ltd. All three were built in under six months.
Don’t let the speed and relative ease of construction be deceptive. These three projects combined amount to 15% of the battery storage installed worldwide.
One Cost Is Falling…
None of these projects would have been remotely feasible even a couple years ago. Thanks to the efficiencies of scale, lithium battery prices are falling, and fast:
And while it is hard to figure out the true combined cost of power stored in these battery power plants for utilities, more and more are looking to them to replace their highest cost power sources.
Peak energy demand often results in the use of gas peaking plants, which provide short-term natural gas power generation to make sure demand is met, and rolling brownouts don’t incite the commoners to break out the torches and pitchforks.
Unfortunately, this can cost up to four times more than the steady, constant generation from regular natural gas power plants. A lot goes into that cost, between making sure capital-intensive capacity is available and idle, to extra work hours on the payroll.
We’re about to hit the point where battery storage overlaps the cost range for gas peaking plants. According to an analytical report from financial advisory firm Lazarus, unsubsidized gas peaking costs range from $179 to $230 per Megawatt-hour. Battery storage is expected to go as low as $216 per MWh, up to $329 MWh, within a couple years.
For perspective, the cost of these kinds of projects was 10 times higher in 2008 than today. And if the current estimated prices halve one more time, battery power plants are expected to be economically advantageous on a national scale.
In other words, the technology is right on the cusp of becoming an integral part of the grid, complementing both renewable and fossil fuel power generation.
Growth in the next couple years is going to be exponential. California alone is mandating that its utilities begin testing batteries by adding more than 1.32 gigawatts by 2020. In 2016, the global market for storage was less than a gigawatt.
Tesla alone hopes to deliver 15 gigawatt hours of storage by 2020 as well.
…While Another Cost is Rising
While battery costs are falling, one cost to battery producers is not. Lithium prices are soaring.
Even in the best-case scenario, the lithium supply will barely keep up with demand for batteries for electrical vehicles in 2017, and there are very few undeveloped lithium mines in the works.
The latest ramp-up in electric vehicle sales creates an undersupply of lithium if the current growth rate is maintained and projected demand is even higher.
This is causing something of a bidding war for battery producers worldwide, and prices are bound to continue to rise for years to come.
An Australian-listed miner, Birimian, even sold a lithium deposit in West Africa to a Chinese buyer for almost 2,000 times what it paid less than a year ago.
Major lithium miners are seeing share prices surge upward as well. In 2016 alone, Albemarle shares gained 87%, SQM gained 82%, and FMC rose 65%.
But that is nothing compared to a company Nick has researched for his Early Advantage readers. It is up nearly 300% since the start of 2016, and it still has plenty of room to run.
Check out Nick’s research on the company, and keep this in mind whenever you think of the energy sector. In the next couple years, it’ll be one of the hottest investing trends out there.
