Tesla’s Game Plan Revealed: How Tesla’s Home, Utility Batteries Will Make Electric Cars Affordable

With just over twenty-four hours until Tesla Motors CEO Elon Musk announces a brand new, non-automotive product at a special invite-only event at Tesla’s Hawthorne Design Studio in Los Angeles, there’s little doubt that the product due to be launched will be like nothing we’ve seen before from the company.

Tesla's large-capacity battery packs have been tested through millions of miles in a range of different weather conditions.

Tesla’s large-capacity battery packs have been tested through millions of miles in a range of different weather conditions.

Yet even before Tesla officially announces the products it told investors last week would include a domestic battery pack and a much larger, utility-scale battery, a game plan is starting to appear which shows that Tesla’s end goal of making electric cars affordable for all won’t rely on the success of its cars.

It looks like Tesla will rely on the mass-market sale of grid-connected storage systems instead.

As Bloomberg reported earlier today, Tesla Motors’ [NASDAQ:TSLA] massive $5 billion investment in its upcoming Gigafactory means that it will soon be able to produce lithium-ion battery cells at price points never before seen. Based on the battery technology used in its range of electric cars, including the original Tesla Roadster, Tesla Model S and upcoming Tesla Model X, those batteries will have an incredible pedigree.

They will be built with the experience of  millions of miles of real-world use, hundreds of thousands of charging cycles, and weather extremes that most commercial battery companies could only dream of. All backed up by Tesla’s always-connected telematics service.

Tesla probably has more information on its battery packs than most battery companies.

Tesla probably has more information on its battery packs than most battery companies, thanks to on-board telematics.

To date, few companies have collected and collated as much information about the life cycles of battery packs as Tesla.

While that’s good news for Tesla and future owners of its Model S, Model X and Model ≡ electric cars, it’s also good news for utility companies around the world. Pushed to their generating limits in peak times like never before on aging electrical infrastructure, both electrical generators and network operators are on the lookout for ways to cheaply and safely store excess electricity generated during periods of low demand to help supplement the strained grid during peak demand.

Grid-tied storage is the most likely solution.

As a study back in January from research firm Navigant Research predicts, the market for grid-tied energy storage could be worth more than $68 billion in just nine years’ time. That’s far more than the market for a range of all-electric luxury cars.

Tesla's battery pack as supplied to Solar City, gives us an idea of what's coming tomorrow night.

Tesla’s battery pack as supplied to Solar City, gives us an idea of what’s coming tomorrow night.

It’s not just load balancing for the electrical grid, either. Pushed by world governments to lower their carbon emissions, utility companies are looking to greener generation methods like solar power and wind power to generate more of their energy mix. Domestic customers too, are investing in photovoltaic panels at a rate never before seen, thanks to the dramatically falling price per kilowatt of solar panels.

In fact, as Bloomberg reported two weeks ago, the world is adding more capacity for renewable energy generation every year than it is for fossil-fuels.

That’s great news for both electric car fans and environmentalists. But while renewables are far better for our planet, they’re not as predictable as a coal-fired power station. And that’s where the mass market for grid-storage battery packs comes in.

Tesla’s predicted battery products, both domestic and industrial, are perfectly timed. As the world’s utility companies, grid operators and microgrid generators look to find ways of lowering their operating costs and store the power from renewables, Tesla will be finishing its massive Gigafactory in Reno, NV.

It’s worth noting too that Tesla is already selling grid-capable energy storage in pilot projects with SolarCity, a company which Tesla CEO Elon Musk happens to be Chairman of. As records detail, Tesla earned $2.7 million last year from that relationship, a total that amounts to less than one tenth of one percent of its total revenue for last year.

It’s also less than 0.003 percent of the total projected market value Navigant Research says the grid-scale energy storage industry will be worth by 2024.

“Whatever Tesla announces on Thursday is just the beginning,” Peter Rosegg, spokesman for Hawaiian Electric Co. told Bloomberg. “Tesla doesn’t have to go after the market — the market will come to them. We’re very eager to see what they have to say.”

Tesla’s battery packs — one domestic sized and one sized for large-scale utility use — will also likely make use of more Tesla technology than just the battery cells themselves. Unlike large static battery packs currently offered in the market, they will use small capacity consumer-grade cells arranged in series and then arranged in parallel in so-called ‘bricks.’ More robust in the case of failure, this arrangement, combined with Tesla’s proprietary battery management system, means that the battery packs will have a longer, more useful shelf-life than packs made of high-capacity, single-sting cells.

A grid-tired storage version of the Tesla battery pack would use Tesla's own BMS and telematics system.

A grid-tired storage version of the Tesla battery pack would use Tesla’s own BMS and telematics system.

If we had to guess, we’d say Internet-connectivity will be included too, allowing domestic customers and utility companies alike the ability to control how the grid-connected units behave, when they store energy, and when they feed it to the grid.

How does this help Tesla bring the Model ≡ electric car to market?

Simply put, electric cars are only as good as the battery pack inside them and only as cheap as the cost of that battery pack. If Tesla can use grid-scale storage packs to unlock the economies of scale it needs to produce battery packs at $150 per kilowatt-hour, it would easily be able to produce an affordable long-range car like the promised Tesla Model ≡ at a price point of $35,000.

Without such a large production capacity and economy of scale, the Tesla Model ≡ remains an unrealistic goal.

Tomorrow night, we’ll be keeping a close eye on Tesla’s announcement to see what the specifics of Tesla’s new products will be. But if we’re right, this could be the turning point for a company determined to wean the world off oil for good.

Do you agree with our prediction? Do you think Tesla’s next-generation electric car relies on Tesla’s success in this lucrative marketplace, or in its existing plug-in cars?

Leave your thoughts in the Comments below.

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  • Darko

    Both Model 3 success and Battery Storage success will be enabled by the Gigafactory success (= availability of large quantity of low cost high quality batteries)

  • Joseph Dubeau

    Good article.nWhat does Tesla current pay for their batteries per kilowatt-hour?

    • Bob_Wallace

      Navigant Research said that Tesla was paying Panasonic $180/kWh for cells last October.

      • Joseph Dubeau

        It’s based on their best guess without any data provided. nEveryone has said $230/kWh.

        • Bob_Wallace

          It’s a statement by Navigant Research. Navigant is a highly regarded industrial/technological research organization.

  • just someone old

    is this coincidence?nhttp://www.nytimes.com/2015/04/30/us/california-governor-orders-new-target-for-emissions-cuts.html?smid=tw-bnannCalifornia just made it even more easy for TESLA

  • Bruce Moore

    Sign me up.

  • Martin

    The take up of electric vehicals is making the case for large scale production of batteries. Each EV at around 20kWh is the same as 4000 phones at about 5Wh. Or 500 laptops at 40Wh. I suspect that in some areas that EVs are already the largest user of batteries and that this will spread to other areas as gas prices rise back to above the cost of production over the next couple of years. As more batteries are made the price will drop and the take up of EVs increase. Residential storage may take off but it will need a much lower battery price than needed for EVs to take off. The real unknown is the price Tesla will offer them at. I suspect that it will be at a green enthusiasts acceptable price rather than a mass market price.n

  • Kalle Centergren

    What time is the event?

  • Ian

    It seems to me that the utilities have a lot more ways to make money off of battery storage than individual consumers- like reducing their grid costs, frequency regulation, etc. If Tesla has set-up some sort of deal where these batteries can sell grid services to the utilities and they are fully integrated, I think that would be a real winner.