Rivals aim to tear down Tesla's Powerwall
A year ago, when Tesla Motors (NASDAQ: TSLA) unveiled its Powerwall energy-storage system, the plus-sized battery pack looked likely to generate a no-hassle, high-margin additional revenue stream for the EV-maker. “The battery business, while still in its infancy, could ultimately be a better business [than auto-making], as it could generate higher margin and require less ongoing spending,” said Ben Kallo, an analyst with Robert W. Baird & Co, in March last year. “The market is less competitive.”
Now, though, as Tesla continues work on its gigafactory and finally starts rolling out the Powerwall for residential users in the U.S., things don’t look quite so clear-cut. Tesla says stationary energy storage remains a “multi-billion dollar per year” opportunity, and the company has been hiring aggressively to expand its Powerwall division. Global investment in the sector is expected to hit $5.1 billion by 2020 — a 17-fold increase from investment levels in 2013, according to Bloomberg New Energy Finance. Revenues in the distributed-storage sector, meanwhile, are expected to skyrocket from $450 million last year to $16.5 billion by 2024.
And it’s true that Tesla has seen strong initial demand, selling at least 2,500 Powerwalls and almost 100 larger, business-focused Powerpacks globally during the first quarter of 2016. “It’s starting to ramp up,” said JB Straubel, Tesla’s chief technology officer. “They are going in all around the world. It’s happening.”
But the prospect of huge demand for distributed energy-storage systems has also given rise to a number of big rivals, some of which appear to have the scale, marketing savvy and technological expertise to give Tesla a serious run for its money. Among the most serious challengers: Panasonic (TYO: 6752), the current supplier of Tesla’s battery cells, which is already rolling out its own domestic battery units in the coveted European market, and expects to earn $83 million in 2018 from the international residential-storage sector.
Automakers, having watched Tesla steal their thunder in the electric-vehicle sector, are also looking to muscle in on the energy-storage marketplace. Nissan (TYO: 7201) this week announced the launch of its xStorage battery unit, which will be price-competitive with Tesla’s Powerwall, in the European market, and is also testing “vehicle-to-grid” software that would allow EV-drivers to use their cars as battery packs, and to sell surplus energy back to the grid. "We believe electric vehicles can become a mobile power unit," said Paul Willcox, Nissan’s chairman for Europe.
Daimler (ETR: DAI) is also gunning for the domestic-storage market, with batteries originally developed for use in Mercedes-Benz electric vehicles now being touted as domestic energy-storage solutions. Individually, Daimler’s modular 2.5 kWh lithium-ion units lack the punch of Tesla’s 6.4 kWh Powerwalls, but they can be combined to provide an impressive total storage of 20 kWh.
And while Tesla has a head-start on its rivals, its global growth has also exposed potential problems. Some early customers complained that the Powerwalls were too noisy for in-home use, a glitch the company now claims to have fixed with a firmware update. “I’ve heard they’re loud enough to want to relegate to a garage or outside. Not for communal areas, certainly," said Logan Goldie-Scot, head of energy storage analysis at Bloomberg New Energy Finance.
Others have questioned the economics of Tesla’s storage system, with the Institute for Energy Research calculating that it would take the average Powerwall user about 31 years to recoup their investments through energy savings. Homeowners who don’t already have rooftop solar systems in place, meanwhile, could take a quarter again as long to reach the break-even point. "It would take nearly forty years for a Powerwall to pay for itself … It is highly unlikely that it would even last that long," warns the IER's Chris Warren.
Despite its teething problems, Tesla has some tricks up its sleeve: Elon Musk has announced that a new version of the Powerwall will be released in July or August, and feature a “step change in capabilities” — perhaps including a larger storage capacity. The company has also shifted Powerwall production to its Nevada “Gigafactory”, and is preparing to begin using battery cells produced on-site rather than units bought from partner-turned-rival Panasonic.
Tesla’s scaled-up, vertically integrated manufacturing could give it an edge over its rivals. Still, the bigger factor in determining the company’s success, at least in the U.S. market, is likely to be the shifting regulatory landscape. From Maine to Hawaii, utilities are engineering a backlash against net metering rules, which allow homeowners to sell surplus energy from solar panels back to the grid at favorable rates. “The picture is rapidly changing across several markets,” says BNEF analyst Yayoi Sekine. “Changes to net-metering policies and implementation of time-of-use rates will improve the case for residential energy storage systems going forward.”
As net-metering rules are revised or abandoned, homeowners could begin to see the appeal in simply storing surplus energy, rather than feeding it back into the grid. That could dramatically stoke demand for domestic energy storage systems — and help spur the creation of a distributed-storage market that’s plenty big enough for both Tesla and its rivals.
Companies to watch
* Vermont’s Green Mountain Power is spearheading Powerwall adoption in the U.S., purchasing 500 units from Tesla and making them available through free pilot projects, direct sales, and leasing arrangements. “We’re confident that we will sell or lease every one,” said CEO Mary Powell.
* Germany’s Sonnen is making an aggressive play for the U.S. market, opening offices in Los Angeles and partnering with SolarWorld and PetersenDean to offer a complete solar-plus-storage package to U.S. homeowners. The company aims to have 100 dealers operating across the U.S. by the end of 2016.
* California firm Enphase Energy is making inroads in Australia, an attractive market for storage companies due to high penetration of rooftop solar. Its Enphase AC Battery takes design cues from Tesla, while delivering Daimler-style modular storage in a format designed to play well with existing solar installations.
Ben Whitford is the U.S. correspondent for The Ecologist. He has written for the Guardian, Newsweek, Mother Jones, Slate, and many other publications.