Three Markets Profit from Tesla's Biggest Change Yet
Last week, Tesla Motors made an announcement clearly meant to redefine its image to the world.
It changed its name; it’s just Tesla now.
I’m sure there was someone out there who was shocked to hear the news, but they’d have to have been living under a rock to not see this coming.
Tesla hasn’t been just a car company for a long time. In fact, you could argue that it never really was one to begin with...
Start of Something New
Even at a passing glance, Tesla Motors was always more than just another carmaker.
It’s the only purely electric carmaker in the world right now, and it had to claw its way into that position from the start.
When the company was founded just 13 years ago, it had little competition. And as you can see in the market today, it was the only one that made it big.
Of course, it now has to deal with the likes of established car companies the world over getting on the EV bandwagon.
But that’s not the issue at hand.
What Tesla’s rebranding really means is that it’s going to be putting more effort into branching out from now on.
The majority of its attention in the short term will be on making sure the Model 3 release is a success...
But it already has a hand in at least two other markets, both of which are fast growing and in need of some new business.
It's a fact we'll all have to face that even our up-and-coming renewable sources will go through cycles, just like traditional energy commodities.
The difference will be that instead of cycling on commodity supply and demand, they’ll cycle on technology.
Take the last few years for solar: Not five years ago, everyone thought solar was the best thing since sliced bread. Solar stocks were flying high, solar capacity was taking off, and the government was subsidizing solar everywhere!
And then it all fell off a cliff.
People stopped buying, and companies shut down. Those who survived learned to change course and rely less on rooftop solar installations alone.
Well, it was assumed that a boom in demand for solar power systems would help bring costs down, thus making solar installations even more popular.
And it did. But not nearly as fast as people wanted.
Homes were outfitted with solar panels on the dream that in the future, those people would never see another electricity bill again.
Instead, they got another bill from the solar company, and little solar energy to show for it.
Moreover, a lot of promises were made on the basis that the solar panels would gather enough energy to sell back to the utilities, thus lowering a homeowner’s electricity costs even more.
But this deal was riddled with problems: homes weren't producing as much electricity as they'd estimated they would, and the decision in Nevada to drastically cut what utilities would pay for this excess energy sent solar businesses into a tailspin.
When the reality set in that solar rooftops weren’t the electrical godsend everyone hoped for, the excitement died out.
Of course, that hasn't stopped the growth of solar installations elsewhere. Larger solar farms are being installed around the world, and Tesla is in prime position to take advantage of that.
Potential family scandal aside, SolarCity was lucky to have had a previous connection to Tesla Motors. Infamous CEO Elon Musk was determined from the start to meld the two businesses, and the buyout that went through in 2016 was just the icing on the cake.
The situation is ideal for Tesla, which can now push for more adoption of its new solar business, plus the one thing that will keep it competitive...
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Bring in the Batteries
Tesla Motors made a deal years ago to sell its Powerwall batteries alongside SolarCity’s solar panels.
Now that they’re one and the same, they’ve basically cut out the middleman.
Tesla’s battery system is already branching out on its own, too. Before the combination with SolarCity — now Tesla Energy, for the record — Powerwalls and the larger Powerpacks were already powering whole businesses and in one case a whole island!
Tesla Motors may have started out as a car company, but Tesla has always been a battery company.
Its investments into the technology have not only given customers record-breaking ranges on electric vehicles, but also large-scale energy storage options that can be used in homes or scaled up to provide energy for much bigger things.
The hype may have faded already, but make no mistake, the Gigafactory in Nevada is going to be huge for the battery industry.
It’s already begun production, and it will be ramping up in phases as more construction is completed. Remember, the factory is slated to produce enough battery power for 500,000 of Tesla’s cars annually by 2018.
Much like rooftop solar hoped to do, Tesla will be using economies of scale to bring the cost of its batteries down over time, around 30% in the next few years, according to the company website.
The company's Powerpack batteries already offer some of the lowest-cost energy storage on the market, lower even than those made by its partner Panasonic.
Unlike rooftop solar, though, Tesla's battery packs will have a much wider reach.
Living It Up
It's pretty clear that growth in lithium, the metal that makes all this possible, isn't anywhere near finished.
Is it safe to assume there will never be anything better? No way! In fact, people are already working on lithium battery replacements, like hydrogen cells and dual-carbon batteries.
But it’s going to be a long time before we see anything else reach the utility and scale of lithium.
Probably the easiest way to get in on this movement is with an index like Global X Lithium ETF (NYSEArca: LIT), which is designed to track the performance of a number of lithium companies.
Short of that, we’ll be looking further into a few different opportunities in the coming months.
Until next time,
Energy and Capital
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