Tesla’s Powerwall Batteries: Promising Response in the First Week

Tesla Powerwall BatteriesDuring the quarterly earnings call for Tesla Motors, Inc. (NASDAQ/TSLA), CEO Elon Musk announced the “crazy response” for the company’s solar panel battery business. He said that within a week of Tesla’s announcement about moving into solar energy, the company had 38,000 reservations for the “Powerwall” and 2,500 for the “Powerpack.” Potential revenue from these reservations is roughly $800 million. (Source: Seeking Alpha, May 7, 2015.)

Tesla is a company better known for designing, manufacturing, and selling electric cars. Its lineup of luxury zero-emission vehicles has become increasingly popular over the past several years. Since 2008, Tesla has sold 70,000 electric cars to customers worldwide. (Source: Market Wired, April 3, 2015.)

Tesla: Sales Orders, Production Capacity, and Competition in Solar Panel Battery Business

Note that not all reservations are going to be converted into sales. Among the $800 million in reservations, around $625 million come from businesses and utilities that are more likely to continue with the transaction. The remaining $175 million in reservations come from residential consumers. Since placing a reservation requires no monetary commitment, the number of residential orders that translate into actual sales remains uncertain.

Production capacity is another issue. Early reservations will eat up production all the way to mid-2016. The production of storage batteries alone, Musk said, could easily use up the entire production capacity of Tesla’s $5.0-billion Nevada factory when it opens next year. Originally, the new factory was designed to have two-thirds of its output going to electric vehicles.

It is unlikely that Tesla will be the sole producer of solar panel batteries that power homes. By 2014, around 645,000 U.S. homes and businesses were already using solar panels; and they weren’t made by Tesla. If it takes too long between placing an order to having solar panels installed, customers might shop elsewhere. (Source: Solar Energy Industries Association, last accessed May 12, 2015.)

Competition in the Car Game

Keep in mind that Tesla, from its inception, is a car manufacturer. Its core business is making electric vehicles. Despite not having the same hype, electric vehicles from competitors are gaining market share. For example, Nissan sold 30,200 units of its plug-in electric vehicle, the “Leaf,” in the U.S. last year. (Source: Green Car Reports, last accessed May 12, 2015.)

Tesla also faces potential competition from cars powered by hydrogen fuel cells. Most major car manufacturers (GM, Mercedes, Ford, Toyota, etc.) are running hydrogen fuel cell programs. Once they make H-cell cars economically viable, we may see them on the streets.

Tesla’s share price reflects investors’ confidence in the company. Since its announcement on April 30, its stock price increased more than eight percent from $226.05 to $244.79.

Despite the hyped growth prospects, Tesla faces tough challenges ahead.