Could batteries add $100 to Tesla’s share price? Tesla Motors Inc. is set to announce a home battery and a “very large” utility-scale battery later this week, and Deutsche Bank says the market still isn’t pricing in the significance of the firm’s new venture.
The company, known for its luxury electric cars, is now using its lithium-ion battery technology to position itself as a front-runner in the emerging market for energy storage that supplements. It already has batteries installed at 11 Wal-Mart stores and 300 California homes equipped with solar panels as part of a pilot program with sister company SolarCity.
Analysts at Deutsche Bank say this new move has significant potential given its view that the stationary storage market is poised for strong growth. In a note called “Why Tesla’s Thursday Announcement Could Be Significant,” Rod Lache and his team say that despite being difficult to gauge before Thursday’s announcement, the energy storage business could add $100 to Tesla shares.
We have not factored any benefit from this market opportunity into our views on Tesla. Until now, the market has not been provided with sufficient information on the company’s planned product offerings, or their growth expectations, to make a judgment. Nonetheless, based on preliminary work on the economics of Stationary storage, we believe that this has potential to be more significant than the Street currently expects. Tesla has previously hinted at the bull case for this product line. Though we’re reluctant to opine on this business in the absence of information, we noted that Tesla’s management previously suggested that Stationary Storage applications could account for 1/3 of their Gigafactory’s output (business worth $4.5 bn/year if at $300/kWh). The bull case would be that this business could potentially add $5 to our 2020 EPS estimate of $20. At a 20x P/E, this would equate to $100 per share.
Deutsche Bank notes that Tesla’s relationship with SolarCity will also be a boost for shares.
Given Tesla’s relationship with SolarCity, we anticipate that Stationary Storage for the home will be a key focus at Thursday’s meeting. We’ve previously noted that SolarCity is targeting deployment at 1 MM customers by mid-2018 (vs. 190k today), which would imply 6,000 MW installed capacity by that company alone. If Tesla could equip just 50% of SolarCity customers with 6 kWh each of battery storage systems by 2018, this could translate into an $800MM revenue opportunity for Tesla (and we’d note that Tesla will likely be working with many PV companies including competitors to Solar City).