Then we agree. Tesla has been selling storage product below cost because it was not able to ship enough volume. That's my understanding of the current nature of the business and it's what I have been saying all along.
Oh-kay. So we're talking at cross purposes because you use a different definition of "cost" than I do.
What I'm saying is that they're selling storage product above marginal cost. I.e. when they take lithium and cobalt and aluminum in one side and ship another Powerwall or Powerpack out the other side, they make money. What you're saying is that they're selling storage product above average cost, which includes all kinds of other one-time and recurring costs which are not proportional to the number of widgets produced. Do we both agree that both of these things are true?
But I don't give a **** about amortized capital costs or the cost to keep the lights on at the Gigafactory. Those are fixed costs which are being included in cost of goods sold, but they aren't proportional to volume of production. They don't scale up. They're not relevant to predicting Tesla's profit margin while they're selling lots of batteries.
In fact, the portion of overhead allocated to this business isn't relevant *ever* because the overhead costs are shared with the overhead costs of making batteries for cars. The allocation of overhead between these business lines is arbitrary, capricious, and of no business relevance.
This is a very important point. Do you understand it? It's crucial to understanding businesses which have economies of scale. This is why I talk about true marginal costs and overhead separately.
I am quite sure that the stationary battery business was initially entered as a hedge against occasional low Model 3 order numbers -- gotta use that giant factory at full capacity. But it turns out that demand is very high, so it was a bigger business than expected (except by JB Straubel, who figured it would be bigger than cars).
Is it worth building a second Gigafatory just for Powerpacks? Perhaps not? Is it worth building Powerpacks when the production lines for cars can't keep up with the cell production? Probably.
Forward looking : could the market be huge? Possibly. But today the business case does not work well for large scale storage.
You're wrong here. The waiting list is proof enough. For the short term, have you ever counted up how *many* isolated grids or flaky edge-of-grid areas there acrtually *are*? In more resilient grids, frequency and voltage regulation and covering short-term (minute) outages is the obvious (highest-payback) revenue source, but it's not the only revenue source which works right now. Price arbitrage is already a thing, of course, as Neoen is doing it. Energy security in areas with unreliable grids (Puerto Rico) is a monumental business, and they won't even look at the LCOE. But those are just the beginning. I've run the numbers and overnight storage already beats building any new fossil plants. (Of course, electricity demand is down in most places, but where demand is going up, it becomes the obvious choice.) It also beats running old nuclear plants. It doesn't reliably beat running old gas or coal plants yet, but the costs of operating those are going to go up (whole 'nother essay there); so we don't even need battery prices to come down.
Perhaps this is our main point of disagreement: the size of the market.
(Perhaps Tesla's biggest problem in the stationary storage business is the same one it's having in the car business: production delays! They've got a waiting list they can't fill, and *that* gives competitors time to move in on the market.)
When the market will be huge, then other operators will be ready.
They aren't ready, though, and the market is already big enough that everyone has waiting lists (not just Tesla). AES and AMS are selling systems and seem to be the main competitors at industrial-scale / grid-scale at the moment, and they have waiting lists too. At residential scale / commercial scale, none of the competitors seem to have economies of scale and none of them seem price-competitive.
The single biggest planned competitor, CATL, doesn't have finance yet.
Energy storage is a commodity. It's simple as that. I don't want Tesla in commodities.
Well, OK. Arguably it isn't a commodity though. The raw batteries are, but the system integration isn't. At the moment, I see two competitors in the systems integration market for battery systems... AES and AMS. (The non-Tesla residential-scale guys have systems which are way too bodged together.)
I want Tesla in markets where it can work its emotional appeal and extraordinary vision to leverage exceptional returns.
Musk is very definitely using the emotional appeal aspect to sell the roofs -- and it's working. And using it to sell the Powerwalls, if not the Powerpacks.
Arguably the stationary storage business will give better profit margins at residential scale than at utility scale due to the less dollars-and-cents-oriented purchase mentality, but on the other hand there are fewer economies of scale in the installation -- that's a hard call. Tesla is of course playing both sides simultaneously, and will probably focus on whichever one seems to be winning.
The new residential/commercial sales model seems to be effectively a turnkey off-grid operation, with solar, batteries, and inverters all provided by Tesla with a standard integration format -- with grid assist for those who don't pay enough to go fully off grid.
This has emotional appeal and people will pay more than the economic payback for the *reliability* factor.
There are a few other companies trying to sell such systems in Australia but they don't seem to have gotten much traction and their system integration seems weak.
