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What Rebuilding Puerto Rico's Grid Would Mean For Tesla And Its Investors

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What Rebuilding Puerto Rico's Grid Would Mean For Tesla And Its Investors
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As of last week, Tesla Inc (NASDAQ: TSLA) was reportedly behind more than five energy projects powering schools, community centers and a children’s hospital in Puerto Rico.

And with seven in 10 residents still without power and the government scrapping its $300 million contract with Whitefish Energy, Tesla may soon field a rise in demand.

The firm’s focus is undoubtedly good from a humanitarian standpoint, but investors may need convincing.

Distraction Or Opportunity?

The solar and battery projects have already hindered Tesla’s auto timeline, compounding delays from Model 3 production bottlenecks.

“Other needs are greater now,” Musk tweeted in October, noting medical infrastructure a top priority.

While an immediate setback to Tesla’s ostensibly core automotive business, the projects are seen to encourage long-term shareholders.

“I think investors generally think of the solar piece as a distraction, and it’s probably going to remain that way for the next probably one to two years,” Gene Munster, managing partner at Loup Ventures, told Benzinga. “But I think eventually the tide will slowly turn and they will see this as an incremental positive to the story.”

For PR’s Sake

Although not necessarily profitable, the projects in Puerto Rico are considered important building blocks and the territory, itself, “an ideal use case” for Tesla to demonstrate its solar and battery capabilities.

“The biggest opportunity that they [Tesla] have is around the grid,” Munster said. “I think it’s kind of one of those perceived side shows but actually core to what Tesla wants to do over the next decade.”

The territory’s lack of existing infrastructure, access to sunlight and proximity to the U.S. lend a suitable set of circumstances otherwise hard to come by.

“No community is going to want to just fully embrace this and be the starting point, so you have to find really an acute pain point — they are just begging for help to be the starting point,” Munster said.

In Puerto Rico, Tesla found a match.

Powering The Investment Thesis

Tesla intends to expand its presence on the island, and the odds of scoring a major contract are favorable. Considering Tesla the most capable company for the infrastructure project, having proven its abilities in comparable communities, Munster places more than a 50-percent probability on its seizure of a large-scale opportunity.

“It’s probably going to be some form of a hybrid where they don’t do the whole thing, they do partial parts to show they can get it done, but clearly Tesla is going to have a place in rebuilding Puerto Rico,” Munster said. “I think it’s going to be a bigger place than we see today. The scale of it over the next few months will become more positive for Tesla.”

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Latest Ratings for TSLA

DateFirmActionFromTo
Oct 2017Evercore ISI GroupDowngradesOutperformIn-Line
Oct 2017Morgan StanleyMaintainsEqual-WeightEqual-Weight
Oct 2017Standpoint ResearchDowngradesHoldSell

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