Production of stationary storage systems has already begun at Tesla’s facilities in Fremont California, while the company’s Gigafactory is “on track” and could even be expanded beyond original plans, company executives said yesterday.
Tesla CEO Elon Musk, CFO Deepak Ahuja, CTO JB Straubel and the company’s vice president of investor relations, Jeffrey Evanson, took part in a Q&A conference call yesterday with investors and analysts to discuss second quarter earnings for the year.
The majority of enquiries centred on Tesla’s EV business, which marked the third anniversary of the Model S’ launch, including some tough questions about a lowered forecast for sales from 55,000 for the year to 50,000.
The executives then also fielded a number of questions regarding Tesla Energy, the stationary storage division launched at the end of April. Reservations for a residential product, Powerwall, and the commercial Powerpack solution, totalled more than US$1 billion already, Musk said.
Musk said the company is "basically sold out" of what it could sell during 2016, before going on to say that the company expects to make around US$40-45 million in storage sales in Q4, and “maybe as much as 10 times that number in for next year”.
Musk pointed out that so far orders placed were just reservations, as opposed to sales. He said that 100,000 reservations for Powerwall and Powerpack had already been made and said it led the company’s executives to think Tesla Energy would be doing five to 10 times more business in 2017 than it would in 2016. But, Musk said, “…as we get further away in time, the numbers are more speculative”. Shortly after the publicity launch of Tesla Energy, Musk had said the company could use the entire Gigafactory to meet "overwhelming" demand for stationary storage.
Asked about progress at the Gigafactory and reports that the company could add even more capacity than originally planned, Musk said that while it was somewhat speculative, “what we have found is, with the Gigafactory, that as we spent more and more time on it, we found we've been able to improve the space efficiency of the production and the overall efficiency by more than our initial expectations”.
Asked by Musk to elaborate on this point, JB Straubel said that while initial plans were on track and unchanged and construction likewise remained on track, “the ultimate production capability of the site is what we believe can go much higher than we maybe initially thought it could,” without giving further details on a possible ramp. The Gigafactory is currently planned to reach 50GWh annual capacity by 2020.
Musk made the comment that stationary storage does not have to link with renewable energy, highlighting the possible network benefits of “system-wide implementation” of energy storage, including flattening peaks of electricity demand which could lead to far less conventional generation power plants being required – “you can basically, in principle, shutdown half of the world's power plants if you had stationary storage,” Musk said.
“This is independent of renewable energy.”
Straubel also revealed that although the company expected demand for its commercial solution Powerpack to far outstrip that for its residential equivalent, Tesla was “ a bit surprised at how strong” demand for Powerwall from retail customers appeared to be.
At approximately 70% vs 30% in favour of Powerpack, demand had been much closer to a 50/50 split between the two than expected, he said.
Brian Johnson of Barclays Capital asked what Straubel described as a “detailed question” on what differentiated Powerpack from rival commercial storage systems.
“If I think about simplistically four levels of a stack in terms of the utility, Powerpack solution with the upper level being sort of the grids, software interface with the grid kind of tie in when it's needed, when it's not needed,” Johnson said. “Second layer, the battery management software and then at the hardware, the inverter and other power electronics, followed by the battery itself. Where do you see your advantage to each of those levels?”
Straubel said that Powerpack provided all four levels of the stack in one system and described the level of integration in the product as its competitive advantage.
“At Tesla, we're integrating all of those pieces together for a very turnkey solution, that utility or commercial customer can just install,” Straubel said.
In a question which hinted that business models for Powerpack are still in the process of being worked out, Johnson went on to ask about control and grid interface software.
As regular readers of this site will know, there is still much discussion over who should control in front of the meter storage, especially with regards to what role the utility should play. California and New York, for instance, are both currently re-evaluating their energy networks to allow for more distributed generation, with utilities widely expected to become the platform through which distributed energy resources (DERs) are aggregated and dispatched.
Straubel said it was something the company was working on and said it was doing so “in partnership with many different utilities”.
“There's not a, perhaps, a universal point of view on exactly where that control and sort of dispatch should live, a lot of utilities want to be very involved in that themselves. So, we're basically setting up the tools and the infrastructure so that they can control in a way that's familiar and the most convenient for them,” he said.
One of the early criticisms levelled at Tesla Energy was that prices quoted on launch did not factor in installed cost and non-battery components such as power electronics. Asked to give details on the all-in cost, Musk said that it depended a lot on “scope and scale” per installation along with other factors, whereas “the battery cost is what matters in the economics”, he argued.
Musk confirmed that, again, while speculative, initial gross margins on battery products will be 15%, which could rise to as much as 30% over time.
With stationary storage in its relative infancy as a global, commercialised industry, Straubel and Musk said it was impossible to predict how the entire market would grow and what their company’s share of that would be. They gave the example of the barely-extant EV market a few short years before the launch of Tesla’s EVs, which has obviously grown enormously with Tesla as one of its frontrunners.
It was “…just as at the beginning of electric car production for Tesla, people were trying to say, "well, how many electric cars have been sold? Were sold last year? Oh, almost none. Therefore, Tesla will sell almost none,” Musk said.
Conference call transcript by Seeking Alpha.