Tesla CEO Elon Musk unveils the Tesla Powerwall Battery before the press on May 1 (Click To View Video)
Even Elon Musk's SolarCity, the biggest supplier in the U.S., isn't ready to install Tesla's home battery for daily users
On May 1, 2015, Tesla Chief Executive Elon Musk introduced a new family of batteries designed to stretch the solar-power revolution into its next phase. There's just one problem: Tesla's new battery doesn't work well with rooftop solar—at least not yet. Even Solar City, the supplier led by Musk, isn't ready to offer Tesla's battery for daily use. The Daily Conversation explains why Tesla's Powerwall Battery is so amazing.
The new Tesla Powerwall home batteries come in two sizes—seven and 10 kilowatt hours (kWh)—but the differences extend beyond capacity to the chemistry of the batteries. The 7kWh version is made for daily use, while its larger counterpart is only intended to be used as occasional backup when the electricity goes out. The bigger Tesla battery isn't designed to go through more than about 50 charging cycles a year, according to SolarCity spokesman Jonathan Bass.
Here’s where things get interesting. SolarCity, with Musk as its chairman, has decided not to install the 7kWh Powerwall that’s optimized for daily use. Bass said that battery "doesn't really make financial sense" because of regulations that allow most U.S. solar customers to sell extra electricity back to the grid.
For customers of SolarCity, the biggest U.S. rooftop installer, the lack of a 7kWh option means that installing a Tesla battery to extend solar power after sunset won't be possible. Want to use Tesla batteries to move completely off the grid? You'll just to have to wait.Bass said in an e-mail.
“Our residential offering is battery backup,”
Musk said in a quarterly earnings call on Tuesday said that demand for the batteries has been "crazy off the hook," with 38,000 reservations for the Powerwall. While storing residential power with the Powerwall is still more expensive than grid power, he said, "that doesn't mean people won't buy it." Demand for the new batteries, including those for businesses and utilities, has been so strong that the company may need to considerably expand its $5 billion battery factory that's under construction in Nevada.
Tesla's Gigafactory, now in the process of construction in the State of Nevada, when completed in 2016, will produce Tesla Powerwall Batteries (Click Image To Enlarge)
The Economic Case for Tesla's New Battery Gets Worse
SolarCity is only offering the bigger Powerwall to customers buying new rooftop solar systems. Customers can prepay $5,000, everything included, to add a nine-year battery lease to their system or buy the Tesla battery outright outright for $7,140. The 10 kilowatt-hour backup battery is priced competitively, as far as batteries go, selling at half the price of some competing products.
But if its sole purpose is to provide backup power to a home, the juice it offers is but a sip. The model puts out just 2 kilowatts of continuous power, which could be pretty much maxed out by a single vacuum cleaner, hair drier, microwave oven or a clothes iron. The battery isn’t powerful enough to operate a pair of space heaters; an entire home facing a winter power outage would need much more. In sunnier climes, meanwhile, it provides just enough energy to run one or two small window A/C units.
For more demanding applications, Tesla made its Powerwall batteries so they can be attractively stacked, side-by-side. It looks like this:
Click Image To Enlarge
But SolarCity doesn’t offer a discount for multiple batteries. To provide the same 16 kilowatts of continuous power as this $3,700 Generac generator from Home Depot, a homeowner would need eight stacked Tesla batteries at a cost of $45,000 for a nine-year lease. Brian Warshay, an energy-smart-technologies analyst with Bloomberg New Energy Finance says.
"It's a luxury good—really cool to have—but I don't see an economic argument."
Yes, Tesla's Powerwall is cool technology with massive disruptive potential. As battery costs continue to fall and electricity regulations continue to evolve in the U.S., it's going to make ever more sense to own a home battery. SolarCity said in its earnings call on Monday that it plans to offer an off-grid package next year in Hawaii, where electricity prices are almost triple the U.S. average.
And the home-battery system is just one offering in the new lineup of Tesla batteries. The company is also doing business with big companies like Wal-Mart, Amazon and even with electric utilities like Southern California Electric and Texas-based OnCor. The economic argument for the commercial systems is straightforward in states with the right incentives, including battery subsidies and expensive electricity charges during peak hours. Tesla now has a clear pricing advantage against its battery competitors.
Tesla Energy batteries for businesses and utility companies are pictured providing energy for the Tesla Motors Powerwall Home Battery event. (Click Image To Enlarge)
But the Powerwall product that has captured the public's imagination has a long way to go before it makes sense for most people. Even in Germany, where solar power is abundant and electricity prices are high, the economics of an average home with rooftop solar "are not significantly enhanced by including the Tesla battery," according to an analysis by Bloomberg New Energy Finance.
That won't stop homeowners from buying Tesla's new batteries. Germans are already buying storage systems by the thousands at significantly higher prices. In the U.S., the product's launch prompted a record day of inquiries from prospective new customers, according to SolarCity's Bass. He said.
"There's a tremendous amount of interest in backup power that's odorless, not noisy and completely clean."
Tesla is probably making very little profit on the home batteries at this point and might even be selling them at a loss, according to research by BNEF. Both Tesla and SolarCity are just getting started, trying to get some traction before Tesla's massive $5 billion battery factory begins production next year. That's when the battery market really gets interesting.
COMMENTARY: This is a great example of unveiling a new product, hyping that product to the high heavens, then taking orders for that product, before the product is ready for primetime.
Solar City's Jonathan Bass, the leading solar panel installer in the US, where Elon Musk is the Chairman, says Powerwall Battery "doesn't really make financial sense." This is one of the reasons, Solar City does not plan on selling the 7kWh version, but only the 10kWh battery.
Solar City says that homeowner's will need a bank of 10kWh batteries to provide adequate backup power. Instead 0f the $5,000 price tag for one Powerwall bundled with their solar panels, the true cost may be closer to $45,000 for a bank of several 10kWh batteries. Talk about sticker shock. These batteries may exceed the cost of the solar panels when all is said and done, and we still don't know if Solar City will charge for their installation.
During Tesla's earnings call with analysts on May 6, Elon Musk said that the company had already received more than 35,000 reservatons for the Powerwall battery ($3,000 each), and 2,800 reservatons for the Powerpack ($25,000) from businesses. The Powerpack can hold ten 10kWh batteries capable of storing 100kWh of electricity.
Tesla has yet to produce a profit since it began operations four years ago. For the year ending 2014, Tesla generated $3.2 billion in revenues, but lost $294 million. In the first quarter 2015, Tesla reported revenues of $1.1 billion, but lost $154 million. By Elon Musk's own account, the company will not generate a profit until 2020.
Losing money is not unusual for startups during their early years, as they work towards building a customer base. Tesla is spending an estimated $5 billion for the new Tesla Gigaplant which is scheduled to be completed in 2016. The Powerwall battery has been described as a "luxury" item by Forbes energy analyst. The same thing can be said about the Tesla Model S all-electric sedan. With the announcement of the Powerwall battery, Elon Musk is taking a huge risk because of the aforementioned sticker shock, possible delays in production, possibility of reliability issues with the Powerwall battery, low margins (around 20% says Musk) and high initial costs to the homeowner, and no payback in sight.
Keep in mind that Tesla does not have solid orders, but "reservations," and without any deposits. Reservations can be cancelled at a minutes notice, especially if there are production problems or issues with Powerwall battery reliability. Tesla is still taking reservations, and they offer delivery beginning summer 2015, early 2016, mid 2016, late 2016 and early 2017. I could be wrong, but I doubt they will be able to meet deliveries for 2015.
Never under estimate Elon Musk. Tesla promised customers it would make deliveries of the Tesla Roadster (its first all-electric vehicle) in mid-2007, but it ran into production delays and a management reorganization. The first 100 Roadster were not delivered until early 2008 and it took until the fourth quarter 2012 to finish producing the 2,400+ roadsters ordered by customers. In spite of these delays, few customer cancelled their orders, although their deposits were fully refundable.
Courtesy of an article dated May 6, 2015 appearing in Bloomberg
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