Tesla Set to Prove It's More Than an Automaker

Unlike SolarEdge SEDG which used to be one of its collaborators and the world’s largest utility company, NextEra Energy NEE, Tesla TSLA is still very much an automaker despite its ambition to become a “global decentralized electric utility”. CEO Elon Musk always insists on Tesla being a tech company, or more recently, an AI-company with its energy division eventually being an equal or exceeding its automotive division.

That is still a dream far from reality considering that during the last quarter, Tesla Energy brought in revenue of $616 million out of the total $18.7 billion.

Delivering its battery promise

Being the most expensive part of EV-making, battery improvements regarding its cost and efficiency is essential to making EVs more affordable. Only then they can truly go toe-to-toe with their internal combustion engine counterparts.

Therefore, Musk's promised improvements in battery cost and performance are found by many analysts to be critical to Tesla reaching its 2030 targets of selling 20 million vehicles a year. By using bigger cells and a dry-coating technique, Model Y battery cost could be halved, which would result lowering the car’s US starting price by eight or more percent.

But there’s a long way to go as this new technique is still unproven, posing challenges to the EV pioneer in scaling up manufacturing to the point where significant cost savings can kick in.

A beacon of hope

Undoubtedly, Tesla’s energy division is living in the shadows of its EV business.

However, its solar division just had its best quarter since 2017 due to improved product offerings.

Solar roofs are still a challenge

Musk’s goal was for Tesla to deploy 1,000 solar roofs per week. By the looks of it, the company is still far off, with last quarter’s data showing 23 per week.

Testing longevity also remains a challenge and installations themselves can be quite hard due to the variety of roofs which makes standardizing almost impossible. There are lots of challenges and opportunities in the segment including for companies as Enphase Energy Inc ENPH and Sunnova Energy International NOVA, not just for Tesla.

A new virtual power plant

Tesla has unveiled a new virtual power plant (VPP) that will enable an island in Japan, Miyako-jima, to benefit even more from renewable energy while fortifying the grid’s resilience which is beyond important in case of a natural disaster occurring.

VPP consists of distributed energy storage systems or more precisely, Tesla Powerwalls home battery packs. They are used in concert to provide grid services and avoid the use of expensive and polluting power plants.

Tesla already has one in Australia that is still expanding and earlier this year, Tesla already launched one in California. Moreover, the premise had its first emergency response event in August as it helped the grid by pooling power from Powerwall owners around the state. The event was a success with the distributed power plant showing us a brighter future of a truly smart electric grid, with Texas being the next stop.

Musk did deliver on his EV promise so it is quite possible that Tesla’s energy business simply hasn't yet caught on.

But as this division is starting to show its projects working smoothly on a significant scale, it is reasonable to expect further developments, more rapid growth and economies of scale. Considering its EV business is mostly done in-house, it is likely that its energy business will also make the switch to using its own equipment and software going forward. By the looks of it, it seems Tesla will use the product releases in its continued efforts to significantly accelerate its energy business in the near future.