No other ideas. Too busy shaking my head about the world.

http://www.zerohedge.com/news/2015-11-20/tesla-tumbles-after-recalling-90000-best-car-ever-model-s-sedans

Got any more short ideas?

Roger

1) There are network advantages for storage. It increases the ability to finance the product, because there is more operating data. This is important to attract lower rates. Additionally, the more units you have out, it enables you to bid into different value streams (virtual peaking plants, etc), so you can have lower costs.
2) Solarcity may not sell the powerpack, but they are likely to include it with the solar system for energy sales.

3) Here are two articles about storage.

It is worth noting that Greentech Media is the cheerleader/news source for the industry, so take the articles with a grain of salt.

http://www.greentechmedia.com/articles/read/tesla-buoyed-by-third-quarter-results-that-beat-reduced-expectations?utm_source=Daily&utm_medium=Newsletter&utm_campaign=GTMDaily

http://www.greentechmedia.com/articles/read/Grid-Defection-Would-Be-a-Bad-Idea-for-the-Average-American?utm_source=Daily&utm_medium=Newsletter&utm_campaign=GTMDaily

Thanks for the response. You are definitely the expert here, but I just have a few comments (following the same numbering):

1. I suspect that the demographic for these babies is a lot higher end than the average, with a lot more consumption than average. So, 7 kWh will only go so far. It certainly won’t allow people to go “off the grid,” which is what a lot of the initial buzz was about. Regarding sub-points (a), (b) and (c), yes, these can make it economic. It is a question of the numbers, for which I don’t have a great feel. I have seen some number that produce the type of returns and pay backs that I don’t think will look too attractive to the average punter, but I really don’t know.
2. For sure, energy density matters for home too, assuming you don’t have an unused barn in the backyard, but it isn’t the absolute priority that it is for cars. So, not irrelevant, but the lithium-ion battery packs and “Gigafactory” are even less the trump card for home use than they are for automotive use.
3. Like with the situation for cars, competition is the key point. I just don’t see why they would be better at this than, for example, Panasonic or LG. Or companies that provide systems for the power grid like Siemens, GE, and a bunch of other people I don’t know. More operating experience? Maybe with electric cars, but not the rest — I don’t think.
4. Sure, everyone wants to be the next Elon Musk, so there is a lot of buzz. And people might pay for some of this. But let’s be clear: This is not like an Apple product where they can command a huge price premium because switching costs are high (especially compared to the cost of the product) and the Apple provides a much better user experience.
5. I agree that net metering is a massive ripoff that cannot continue, at least not in its current form where home producers get paid retail prices. But payment of wholesale prices can probably last a long time and it will still greatly reduce the incentive to buy storage.
6. I agree. All of this stuff is moving and home storage might be part of the puzzle, but for example, if people use PowerWalls to shave peak demand costs, then in the short-term this either (a) bankrupts the utilities or (b) shifts costs to someone else. This is not sustainable either.

I have seen some overall market figures that are large, but I have also seen these disputed by people who appear to know a lot more than I do. I think that there are a lot of moving pieces here — regulation, cost of batteries, cost of alternative energy, cost of conventional energy, etc. — and it is very difficult to predict how this is going to shake out. It may be a big market but then, as I always say about the cars, the victory of electric vehicles over internal combustion engines is NOT the same as the victory of Tesla. The problem is that Tesla’s stock price assumes that (a) the market is big, (b) Tesla takes a big chunk of it, and (c) Tesla commands very generous margins. And that means that a lot more things can go wrong than have to go right to justify the current stock price.

PS. SolarCity has specifically said they are not going to sell PowerWalls. At least not for now.

You caught me as I have gone full California.

In response to the points on storage.
1) The average power consumption for a house is 30 kWh per day (EIA) and the powerwall provides 7 kWh, so it can impact a meaningful amount of the load. The battery can create dollar value four different ways.
a) Demand Charge Reduction – People are charged based on their peak demand. Shaving that can create a lot of value.
b) Load shifting – The difference between summer peak and summer low-demand prices are 2 to 1, so there is profit to be made.
c) Frequency regulation/demand response/grid support – This is a nascent market. On the East Coast, they are making progress pricing it.
d) Emergency back-up
We are still figuring out the best way to monetize these, but they are going to be a massive market (see final thoughts).
2) Part of that is true and part isn’t. Energy density is important for home systems. Most people don’t want to give up a lot of space or have an unnecessarily expensive installation. In addition, the battery packs are one of the most significant costs for the car, so they are very focused on reducing cost. Also, people don’t want lead-acid batteries in their houses, if they can avoid them.
3) I agree that there will be competition. Tesla is building a lead on the software side of the equation, which will put them in a good place relative to the competition. They have more operating experience, which helps too.
4) I agree that the pre-order numbers don’t mean much. They are a big brand and have inspired the developing world. I met partners across sub-Saharan Africa, who couldn’t stop talking about Tesla and the powerwall. They will get a premium for this.
5) Net metering – You are spot-on for current solar customers. The surplus solar offset against the utility bill like a tax credit, reducing the most expensive power. The problem is that many utilities do not like ‘net metering’ and there are already places where the legislation is moving away from those schemes.
6) Yes, we need to figure out the role, cost and payer for the grid. Those are tough questions to answer. I think in any future world of energy there will be a huge role for storage to support and enhance the grid.

In terms of the market size (residential, commercial and utility), we are talking about over a gigawatt by 2020 (~$3 bn of COGS) in California and the expectation is for rapid growth from there as grid/public utility commission rules enhance storage values, costs come down and we get better at financing them.

Also, Tesla benefits from the relationship with SolarCity. They have integrated access to hundreds of thousands of homes, which puts them in a better place than other battery producers.

I agree that Tesla might not be the right company to own the market, but I don’t see any other players establishing themselves in the near-term.

I think that energy storage is a complete red herring — but I am willing to be educated since I know that this is your field. I would just say the following:
1. In order to run any type of home for a reasonable period of time, you have to buy a lot of the Tesla panels, since home electricity consumption is very, very high. This gets very expensive, very quickly. This means that “load management” only becomes economical when there are very, very large differences between peak and non-peak rates from the utilities.
2. The Tesla batteries are optimized for automobile use, to make them light, compact and powerful (but relatively expensive). Since these characteristics are largely irrelevant in home storage, I think that Tesla has some significant competitive disadvantages in this field.
3. As the above comment makes clear, there is the general point that Tesla has significant competitors in this fields (Bosch, etc.). Like with the cars, this competition will make it hard for Tesla to generate the margins and growth necessary to justify its current stock price.
4. Tesla announced 30,000 reservations for its Power Walls. But to make these reservations required no money and could be done over the internet in about 15 seconds. Musk trumpeted these reservations in a Tweet but I think that this is another example of his selective disclosure and stock pumping. I think that they are largely meaningless.
5. Many states, including California (I think), have “net metering” which means that you can sell back excessive power generated by solar panels to the utility at very attractive prices. For people with solar panels in one of these states, this is by far the most efficient way to store excess production.
6. Finally, as you know, many of the things that appear economic today depend on costless access to the grid as a backstop. This is already a huge problem, for example, in Germany which has gone furthest in promoting alternative energy. This is a form of regulatory arbitrage that cannot go on forever since it will bankrupt the utilities (or cause them to shift costs to the remaining customers) and is manifestly unfair. Things will change in the future (such as very high access charges) that will undercut some of the demand for things like the Power Wall.

In short, I think that this is a much smaller market than some people think and that, in any case, Tesla is not very well positioned in it. But I would be curious if you disagree.

The R&D point is totally valid, but as I point out to many Tesla-ites, having grown up among the lumbering incompetents in Detroit (who for years were protected from competition by government policy and a successful brainwashing of the public to “buy American”), the modern automobile industry is far from GM and Ford in the 1970s. You know this from your own experience. The Germans (and the Japanese, and the Koreans, etc.) make great products. They are not wasting their R&D, or at least not enough of it for Tesla to take comfort. (For example, the total that Tesla has spent on its SuperChargers is but a small fraction of the annual R&D budget of Volkswagen. I expect shortly that VW, probably in a consortium with other car manufacturers, will be announcing a competing network to the SuperChargers.)

And I don’t think that they spent much money on the cheating software. But, in general (and contrary to the beliefs of the Tesla supporters), the diesel scandal is bad news for Tesla. Now, the rest of the industry will have to redouble their efforts in EV, which is not good news for Tesla. They have already announced this.

(As an aside, the prevalence of diesel in Europe is another case of bad government policy. Read, for example, this article in The Economist, which describes how government policy deliberately favored diesel in Europe: http://www.economist.com/news/leaders/21666226-volkswagens-falsification-pollution-tests-opens-door-very-different-car.)

Thanks for the comments and I would be very interested to hear if you have a different take on the storage arguments. I mean interested with a capital “$.”

Roger

1) I don’t see any mentions of energy storage. This is going to be a huge business for them. They are the largest player in ‘stationary’ storage in CA and this market is poised to become huge.

2) The R&D point is valid, although I would note that Xerox, Kodak and IBM spent tons on R&D in the 1980’s and 1990’s and had little to show for it. If VW is investing heavily in diesel cheating software, as GM and Ford invested in cars people didn’t want in the 1970’s and 1980’s, it isn’t worth much.