Bloomberg News

Musk’s Tesla Batteries Mean ‘Strife’ for Electric Utilities (2)

February 28, 2014

Tesla Motors Inc. (TSLA:US)’s Elon Musk, already taking on the auto and aerospace industries, is going after utilities by seeking to drive down the cost of storing energy through building cheaper batteries.

The electric carmaker said in a Feb. 26 filing it’s developed a battery to store power for homes, commercial sites and utilities, the same day as announcing plans to invest as much as $5 billion in the world’s largest battery factory. The Palo Alto, California-based company is seeking to cut the cost of lithium-ion batteries by at least 30 percent.

Shifting to greater use of wind and solar power will bring “some amount of strife for the existing utilities, especially for those invested more heavily in fossil fuels,” Musk, who is also chairman of solar-power company SolarCity Corp. (SCTY:US), said yesterday at a California Public Utilities Commission event in San Francisco.

Along with cheaper batteries to drive down the cost of Tesla’s Model S electric sedan, now priced from $71,000, the company is designing stationary battery packs “that last long, are super safe and are compact,” Musk said.

“We do want to make sure we have battery production capacity at a compelling price to offer a large-scale use of stationary storage,” Musk said. “Hopefully, we’ll have that plant up and running in about three years.”

Tesla fell 3.1 percent to $244.81 at the close in New York. The stock (TSLA:US) has gained 63 percent this year. SolarCity fell 1.4 percent to $84.96.

‘Existing Game’

Musk, Tesla’s co-founder and chief executive officer, also leads closely held Space Exploration Technologies Corp., or SpaceX, the first private rocket company to resupply the International Space Station.

The South African-born Musk, 42, and his cousin, SolarCity CEO Lyndon Rive, spoke at the commission as part of its “Thought Leaders” series. The agency regulates power companies in California.

“There is no doubt storage will become cost effective and deliver electricity with storage at night,” Rive said.

Utilities in California, which are taking months to connect residential solar panels to their systems, are delaying change because they profit from the current system, Rive said.

“When you have a game-changing technology, those in the game don’t want to change,” Rive said. “They like the existing game, the sole source, cost-plus model.”

It now takes eight months for utilities in California to connect a SolarCity solar and energy storage system to the grid, Rive said.

California utilities have said they’re taking time to approve some battery backups wired to solar panels because they can’t be certain the power flowing back to the grid from the units is actually clean energy.

Accelerate Change

Tesla’s proposed battery factory could accelerate changes in the electric utility business as more customers start producing and storing their own power, Adam Jonas, a Morgan Stanley analyst, said in a Feb. 25 note. Musk is also the largest shareholder in SolarCity, which offers Tesla batteries as part of a system for its rooftop solar customers in parts of California and New England.

Other companies are starting to provide similar products as customers seek ways to cut the cord to the traditional U.S. monopoly power utility, which had sales totaling about $360 billion in 2012.

The company has said it’s exploring locations in Texas, Nevada, Arizona and New Mexico for the 10 million-square-foot battery facility that would be key to expanding Tesla’s production from 35,000 cars a year to 500,000 or more.

Storage Opportunity

“While the grid storage opportunity makes the Tesla story more interesting and is likely to further boost stock momentum, we do not see it as a financial game changer,” Barclays Plc analysts led by Brian Johnson, who rates Tesla the equivalent of a hold, said in a note to clients yesterday.

Separately, Musk said at yesterday’s briefing that Tesla still intends to test battery-pack swapping stations capable of quickly repowering his electric vehicles. The company demonstrated a system for exchanging a drained lithium-ion battery pack on a Model S with a fully charged one in 90 seconds in June 2013.

At the time, Musk said the first stations offering that service would be open by the end of last year. “We’re a little bit behind,” he said yesterday.

A few battery swap facilities will open “in the next few months” between Los Angeles and San Francisco, he said. Tesla will study how heavily they’re used before deciding to do more, he said.

To contact the reporters on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net; Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net; Jamie Butters at jbutters@bloomberg.net


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Companies Mentioned

  • TSLA
    (Tesla Motors Inc)
    • $250.03 USD
    • -9.29
    • -3.72%
  • SCTY
    (SolarCity Corp)
    • $60.84 USD
    • -3.77
    • -6.2%
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