Tesla’s powerwall

Hoium, T. November 1, 2016. Powerwall 2 Takes a Step Forward in Making Tesla’s Energy Storage Vision a Reality. Powerwall 2 is an improvement on the previous-generation product but does little to justify its cost to customers.  The Motley Fool.

Tesla‘s (NASDAQ:TSLA) Powerwall 2 was unveiled in an event on Friday, and it brings energy storage a step closer to reality for the company’s customers. When combined with SolarCity (NASDAQ:SCTY) solar panels, the energy storage system could allow a customer to generate 100% of their electricity on some days, which is the ultimate goal for Elon Musk’s energy vision.

But before we get too excited about a wall-mounted battery pack, we need to unpack what’s improved and what hasn’t about the Powerwall 2.

A small step forward

When the original Powerwall was announced last year, it garnered a lot of attention in the media and from customers. 38,000 Powerwalls were pre-ordered shortly after the product was announced, but only a small fraction of those orders turned into sales. Tesla doesn’t break out Powerwall unit sales, but given the Tesla throws the product in with the $150 million of quarterly sales in “service and other” — which includes Powerwall, Powerpack, used car sales, and vehicle services — we can deduce that there’s not a significant number of sales for Powerwall 1.

The second-generation Powerwall makes some slight improvements, increasing size and lowering cost. But the cost of Powerwall 2 is only 13% less than the previous generation on a per-kWh basis.

Screen Shot

Data source: Tesla Motors. Table by the author.

What this doesn’t account for is the integrated inverter. Powerwall 1 needed the battery and an inverter to turn DC power to AC and that component is now included. But we know almost nothing about it.

Will this be Powerwall’s killer feature?

Elon Musk has been arguing for months that Tesla and SolarCity need to combine to create a more cohesive energy offering. And Powerwall 2 was a chance to show that vision, but there was no integration to speak of in the announcement.

The fact that Powerwall 2 includes an inverter was only discovered after the event when press asked Musk the question directly. But we don’t have information about the system’s efficiency, how it could streamline installation, or how customers will generate revenue or cost savings from the product.

It’s easy to speculate that this could be a step forward in the solar+storage future for homeowners, but we don’t know enough about the product or how it works to make that determination yet.

Why the Powerwall won’t change energy…yet

Eventually, energy storage is going to be a big business around the world. But it’s not yet clear that energy storage in the home will make financial sense for SolarCity or Tesla customers. Powerwall 2 didn’t do anything to accelerate the justification for energy storage yet.

For now, Tesla is more likely to build a large energy storage business serving utilities with the Powerpack product. Powerpack is more cost effective and can be used to reduce costs in other parts of the grid, like substation or transmission upgrades, that residential energy storage can’t. If investors are looking for where Tesla can make an impact on energy, I would look at the Powerpack, because Powerwall 2 won’t be a big seller for many years to come.

 

Randal, T.  May 6, 2015. Tesla’s new battery doesn’t work that well with solar. Bloomberg.

Even Elon Musk’s SolarCity, the biggest supplier in the U.S., isn’t ready to install Tesla’s home battery for daily users.

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 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. “Our residential offering is battery backup,” Bass said in an e-mail.

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.

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. 

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. “It’s a luxury good—really cool to have—but I don’t see an economic argument,” said Brian Warshay, an energy-smart-technologies analyst with Bloomberg New Energy Finance.

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.  In the U.S., the product’s launch prompted a record day of inquiries from prospective new customers, according to SolarCity’s Bass. “There’s a tremendous amount of interest in backup power that’s odorless, not noisy and completely clean,” he said.

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.

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