Tesla’s value jumped this past week. Astronomically. It’s now the 8th highest valued car brand in the world. The company has had a 85.93% share price increase since the Dec 2016 and now has a ~$56Bn market cap. Yes, in a world where it has not produced as many cars in its lifetime as the #1 car manufacturer produced last year. So is that right? Are we skewed in our valuation of companies because they are more technologically innovative than others? The answer is yes. But, in Tesla’s case, it’s a lot more complicated and it’s definitely not for the reasons we think. I’ve had this conversation with a few non-utility industry friends and I had to write a post to share.
Most Tesla investors are focused on the long term possibilities of value that the company can capture from i) unleashing driverless cars (video below), ii) Solarcity installations of solar panels on the 98% of the market that is left unserved and iii) from more sales of more cars (Tesla Model 3) to the masses.
But these things are not where the true (over)value of Tesla’s stock price comes from. While car sales and solar panels are valuable, they are not as valuable as the opportunity to make good on the promise Elon Musk made in his Tesla Master Plan Part Deux.
There is a lot of talk about how Elon Musk and other purveyors of solar, wind, energy storage etc., all classified as Distributed Energy Resources (DER), are disrupting the traditional utility, a utility that operated on a centralized business model of generating electricity in one location and transmitting it over a distance to a customer who paid for whatever amount of electricity they consumed. This disruption is central to what Musk is looking to do with Tesla.
It truly is about the utilization of DER. Musk clearly states this in his Tesla Master Plan Part Deux. The company goals are
It’s the whole point for the gigafactory which, unlike most other Tesla announcements, might actually be delivered on time. The Powerwall also does not require a similar disruptive innovation model of selling first to high-value customers (as Tesla did with the electric vehicles) as there are currently markets and use cases where the price/kWh of the electricity from the Powerwall is market competitive.
The real value of Tesla as a company comes from the many and global use cases that Tesla can get from simply generating electricity from solar (through Solarcity)and deploying electric cars & Powerwalls everywhere as energy storage. From storing the energy generated by a solar panel (for e.g.), there are basically two benefits to energy storage technologies like Powerwall and Tesla car batteries. Storage can be used to
While there are many other medium and low value storage use cases on the electricity grid, what the list above shows (to those within the electricity industry and now to you) is that storage pretty much covers almost all the use cases that are of any value towards maintaining a stable and functional electricity grid. Storage is also the best transition technology between the current state of the electricity grid (which is not great) and the future utility. And, obvious but worth stating, electricity is at the core of everything we do in our digital economy across the world. Save for clean water, air and (to a certain extent) food, electricity is the same commodity everywhere in the world. This essentially makes the whole planet the total addressable market for storage/electricity. So it’s truly all about the Powerwall…
With continued delays in delivery, Elon is now expected to make product pronouncements his companies cannot deliver on, there will be issues along the way of matching the company’s value and stock price.
That being said, Tesla can provide the storage use case solutions shared above in markets across the world. This is already playing out as Powerwalls were deployed at scale in Hawaii, are being installed in Australia, were sold to Singita Safari Lodge in South Africa (image below) and to Virunga Gorilla park in Congo all with different grid uses cases. The critical point here is that the market opportunity for the storage solution is global. And that’s what’s being priced into the stock. We’ll see how it plays out.
What’s left is for Elon Musk and his crew to not screw this up for both their investors and us the customers on the (future) electricity grid. We all can’t afford for the substance to not match the hype…
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