A 'Significant Opportunity' For Tesla Rests In Energy Storage

In a report published Wednesday, Deutsche Bank analyst Rod Lache commented on Tesla Motors Inc (NASDAQ: TSLA)'s April 30 new product announcement which will likely be a new battery storage system for the home and utility/commercial market and powered by the same batteries used in Model S cars.

"We believe that energy storage represents a significant opportunity for Tesla," Lache wrote. "The synergy between stationary storage and distributed energy generation (i.e solar and wind) is relatively straightforward."

Lache said that the economics behind energy storage are "quite favorable" and the company can sell battery packs to consumers (either directly or indirectly through companies such as SolarCity Corp (NASDAQ: SCTY)) at $300/kWh, whereas Tesla's cost is likely less than $225/kWh today and on its way down to $150/kWh. As such, the levelized cost of electricity (LCOE) for Solar/Battery combinations could be in the $0.39/kWh range which compares favorable to peak energy costs in the $0.49/kWh range today.

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According to Lache, the opportunity for Tesla in the new market is "somewhat speculative" given the infancy stage of the utility and home storage market. Nevertheless, the market for utility scale energy storage has already reached $2 billion annually and could grow to $6 billion by 2020. The analyst added that Tesla CEO Elon Musk and Solar City CEO Lyndon Ryve have already commented that they believe every SolarCity unit will ultimately be bundled with a battery storage.

SolarCity has a target of deploying solar storage to one million customers by mid-2018, implying 6,000MW of installed capacity. If Tesla could equip 50 percent of SolarCity customers with 10kWh battery storage by 2018, the analysts note, this will generate up to $1.5 billion of revenue for the company. Moreover, Tesla is planning to allocate 30 percent of their Gigafactory capacity to stationary batteries in the future. At a price of $300/kWh, this could generate $4.5 billion in annual revenue.

Shares of Tesla remain Buy rated with an unchanged $245 price target.