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Tesla Redux

20 May 2015
Tesla Powerwall In a recent column I rhapsodized about Tesla's announcement of battery technology that seemed to promise a turning point in the role of solar power in home electrical generation. No such luck. The news isn't all bad, but now that we have a more complete picture, the good news is incremental at best.

In my column I cast the situation as a contest between two billionaires, one with a purely greedy motive (Warren Buffett) and the other with a profit motive that coincides nicely with the public interest (Elon Musk). Or seems to. In this column I look more closely at the hype of Musk, a man I admire. The financial community, ever skeptical of Tesla's inflated capitalization on Wall Street, is raising questions about the competitive utility of his battery technology and the financial prospects for his car business. Some think he's robbing Peter to pay Paul at a time when Peter is just as broke as Paul.

Recall that efficient battery tech is the Holy Grail of the solar power industry, because rooftop solar panels will generate excessive electricity during sunny hours and none at all at night. Hence the ability to store the day's unused electricity has been a critical unmet need. Heretofore it has not been possible - that is, not financially viable. There is no breakeven.

The solution to the bad battery problem has been "net metering", whereby the home user sells his excess electricity back to The Grid - the local electric utility - and buys it back as needed, such as at night or during extreme weather. Utilities don't like to do that because they're in the business of selling power, not trading it; trading it deprives them of sales volume. So in Nevada the state legislature requires NV Energy, a Berkshire Hathaway (Warren Buffett) company, to net meter up to three percent of homes. This has become a problem because the rooftop solar industry has developed innovative financing that has caused the business to boom - and promise soon to overtake the three percent requirement. NV Energy doesn't want to buy solar power from you, it wants to sell it to you as a monopoly. So right now a bill before the state legislature, AB330 proposed by Assemblywoman Marilyn Kirkpatrick, would revise the law to revise or remove the cap.

Visit the Nevada Legislative Portal to read about AB330's progress in the State Assembly and, hopefully, Senate.

Into the middle of this debate comes Musk's announcement of the Tesla Powerwall, a home battery that will store and issue up to 10 kilowatts (kW) for a cost of $3,500 -- but as we have learned from Forbes reporter Christopher Helman, there are details.

One detail is that full installation brings the cost up to $7,000 or more, depending on how much adaption is required in your home. Helman calculates that electricity from the Powerwall will cost 15 cents a kilowatt hour, while the national average from utility grids is 12.5 cents (unless you live in California, where it is much higher). So the Powerwall is best used in situations where electricity is expensive (Hawaii, California) or completely unavailable, such as remote undeveloped regions of the world. Or if you are serious about going off the grid. It also makes sense if you own your own solar paneling, but in Nevada, most home rooftop installations are financed through SolarCity and other firms that lock homeowners into 20-year leases at today's rates. For those folks the Powerwall does not make financial sense.

The second detail is that while the average home may need less than 10 kW on average, rather ordinary peak events can easily bring peak needs above 10 kW. By one user's reckoning this could happen by the simultaneous use of an electric stove, electric clothes dryer and air conditioning - a commonplace occurrence in many homes on a summer Sunday evening, as well as many others.

Thus Helman suggests the Powerwall's best use is in arrays for small communities, where electrical use may be smoother than in a single household. Whether that use is actually better than in an individual home remains to be seen.

A final detail is that the Powerwall is not new tech: it is a lithium-ion battery. The battery business has plenty of entrants already. If Tesla cannot compete on price, it will be challenged to improve the tech quickly or have another money-gobbling business on its hands. Since the tech challenge is already a worldwide race with billions of dollars in play, Tesla's barriers to success seem high.

The battery business comes on top of Tesla's heretofore core business, cars, which remains a money-gobbling proposition itself. By one measure Tesla could face bankruptcy in late 2016 or 2017 as it is faced with its promise to car owners, to buy back their cars if offered. Tesla has yet to sell enough cars to be anything more than a boutique manufacturer; its competitions - BMW, Volkswagen, Toyota, Nissan, Ford - all have staying power that Tesla will take a long time to approach. No one knows how many cars will come back next year or what it will cost Tesla, but if the hammer falls as some fear, it will be an excellent time to short Tesla stock. Tesla's car losses may be one reason Musk is diversifying into batteries, but whether he can be competitive in batteries is also open to question.

Read Helman's entire Forbes article here.

As I mentioned earlier, I admire Elon Musk. I admire him for his pioneering entrepreneurial endeavors in arenas that need leaders of vision like him - in online payments (PayPal), in green cars (Tesla), in space (SpaceX), and now in electricity tech. It takes a lot of chutzpah to build businesses that are doomed to lose money for the foreseeable future, even with government handouts. It's easy for people like you and me see what he is doing, admire it, and be certain that his ideas are so good that they are bound to end up well, but there are no guarantees. His vision may be bold but his delivery still lags - for the foreseeable future. Thomas Edison lost control of the light bulb and the electricity delivery business due to financial stresses. A decade from now we will still be talking about Musk's green-friendly business ventures. Whether we will be talking about them as successes or failures, that I would not bet on, but as long as he perseveres I expect to be cheering him on. And if it makes sense for me, I will even buy in.

Tesla Powerwall Specs

You may also like this related article: Billionaires Battle for Solar Power Supremacy (215)
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