Amid unprecedented demand, Tesla's battery storage sales skyrocketed earlier this year. We break down why, and what it could mean for the industry.
In an interesting turn of fate, Tesla's battery storage business is accelerating at a faster pace than its electric vehicle (EV) segment, propelled by surging demand and amplified production capabilities.
In fact, CEO Elon Musk stated that he belies the company's stationary-storage growth could eventually outpace its vehicle growth.
Although automotive revenue will continue to remain high and possibly even higher than its storage revenue, Musk believes gigawatt-hour (GWh) needs will likely tilt in favor of stationary storage.
Because there is a greater need for stationary energy storage to enable a sustainable energy economy, Musk believes there will eventually be a higher demand for stationary battery storage than EV batteries.
This projection was in sharp focus back in Q1 2023, when Tesla's vehicle shipments grew just 36% YoY, significantly less than the nearly 4x increase in storage shipments. Tesla reported a remarkable 360% YoY surge in the deployment of its battery packs, including its utility-scale Megapacks and home-storage Powerwalls, equivalent to 3.9 GWh deployed. And the company's combined solar and storage revenue reached $1.53 billion.
To date, the company has installed 500,000 Powerwalls. While it took Tesla 6 years to install the first 250K units, it only took under two to install the next 250K. So the pace is clearly picking up.
On the other hand, utility-scale storage is assumed to have contributed to a significant portion of Tesla's battery storage revenue. For example, French firm Neoen just announced a partnership with Tesla for a 197 megawatt (MW) battery installation in Western Australia, and the Dutch energy company Eneco plans to build a 50 MW battery energy storage project in Belgium using 53 of Tesla’s Megapacks. And then there’s the deal to supply Strata Clean Energy with Megapacks for its 255 MW battery storage project in Arizona, as well as 17 other major projects in the works as of December 2022.
Teslarati also recently reported that the company's Giga Texas project has installed 24 of the planned 68 Megapacks that will power Giga Texas. Upon its completion, the project is now expected to be larger than the Hornsdale Power Reserve project, which Tesla built for Neoen in 2017 and was the world's largest lithium-ion battery at the time (and has since been upgraded).
Tesla’s so-called “megafactories”, like the one it opened in Lathrop, California in 2022, and another planned to come online in Shanghai for 2024, are pivotal in scaling up Tesla's storage production capabilities. Tesla’s first 40 GWh Megapack factory produces an estimated 28 Megapacks per day (although some have observed this can fluctuate as low as four to nine produced per day). Each megapack provides 3.9 MWh each.
PV magazine reported that Tesla installed 6.5 GWhs of energy storage products in 2022 at an average of 4.5 Megapacks per day, but if the company can reach anywhere near their maximum 40 Gwh annual capacity by the end of 2024 and 2025, the company’s energy storage business will experience 1,000% growth from last year.
With both plants, Tesla claims it will be able to manufacture up to 83 GWh of megapacks a year. More interestingly, the company’s Master Plan stated that if it can build 57 of these Megafactories, it can produce the 2,310 GWh of storage power. In other words, 57 factories would allow it to produce enough batteries to achieve a 100% clean grid.
So why so much battery growth? Industry experts have pointed to the Inflation Reduction Act as a superconductor for the stationary storage market. Energy storage expert Dan Finn-Foley at PA Consulting told Canary Media that the market is now, “worthy of dedicated and specially design products produced at the gigawatt-hour scale.”
According to energy analyst firm Wood Mackenzie, an impressive 60 GW of grid-scale storage will be built between 2023 and 2027, with 111 GWh of installed capacity estimated by the end of 2025. And Canary previously reported that the U.S. had 680 GW of storage capacity in interconnection queues at the end of 2022.
Most interesting, the increase in energy storage capacity is eclipsing the initial expansion trajectory of utility-scale solar. When looking at the U.S. market, solar capacity began its uptick in 2010, starting from less than 1 GW and reaching a substantial 13.7 GW by 2015.
Meanwhile, the U.S. Energy Information Administration (EIA) projects a more aggressive growth rate for energy storage, forecasting an upswing from 1.5 GW in 2020 to a staggering 30 GW by 2025. Currently, battery storage has an installed base of 8.8 GW, with 9.4 GW expected to be installed this year.
Putting all those numbers in context, what this means is that utility-scale storage is growing far faster than utility-scale storage did, which is good for the industry and aligns with Musk's projections about the growth rate of stationary-storage. If battery storage does in fact hit the benchmarks the EIA highlighted, it could be in large-part thanks to the Inflation Reduction Act.
One of the biggest bottlenecks here seems to be access to the raw materials for lithium. For its part, Tesla broke ground on a new lithium refinery on May 8th, becoming the only U.S.-based automaker to refine its own lithium. Musk said the goal of this move was to produce enough battery-grade lithium for 1 million EVs by 2025. Currently, it relies on Albemarle and Livent as its main lithium suppliers, the latter of which has the only operating lithium mine in the U.S. (based in Silver Peak, Nevada). Albemarle plans to build its own $1.3B battery-grade lithium processing facility in South Carolina, but construction will begin at the end of 2024.
It’s not that the U.S. doesn’t have large reserves of lithium - in fact, it’s been estimated that there are about 8 million metric tons of lithium (approximately 4% of the world’s total estimated supply) in U.S. reserves across California, North Carolina, and Nevada.
The problem is that the U.S. doesn’t have the processing and refinery infrastructure in place to use it. It used to, but since the 1970s, the country has exported all of the lithium mining and production facilities to China, Chile, and Argentina. As a result, the U.S. is only responsible for 1% of the lithium produced and refined today. Meanwhile, China controls roughly 60% of the world’s lithium refining capacity.
Tesla's efforts to produce more of its own batteries could upend the hierarchy of the battery industry more broadly.
As June Yoon wrote in Financial Times, the company’s efforts to produce its own cylindrical 4680 battery cells can help it maximize its subsidies under the Inflation Reduction Act and increase its margins on every car sold through more vertical integration. Tesla reached a battery cell production capacity for over 1,000 cars a week in December, and when it finishes its expansion of its Nevada’s plant, it should be able to make 100 GWh of 4680 cells per year. That’s enough to outfit 2 million EVs in a year.
Yoon writes this creates a bit of a problem for certain non-U.S. battery producers (and Tesla suppliers) such as Panasonic or LG who have to invest billions to produce more batteries in the U.S. Panasonic recently revealed it would have to construct four new factories to meet its ambitious target of increasing annual EV battery production to 200 GWhs by 2031, a 4x increase from its current capacity. The firm currently operates a plant in Nevada and is constructing a second one in Kansas, which is projected to enhance its annual capacity to 80 GWh.
For its part, Panasonic is open to exploring potential joint ventures for EV battery production to potentially cash in on Inflation Reduction Act tax credits (following an agreement between the U.S. and Japan from March that improves access to EV tax credits for Japanese manufacturers).
The booming expansion of Tesla's energy-storage business could position the company as a major player in the sector if current trends persist. This growth, coupled with the introduction of specialized products at the GWh scale, signifies a dramatic increase in utility-scale battery storage development. However, it's worth noting that storage still represents a fraction (6.6%) of Tesla's total revenue of $23.3 billion in Q1, underscoring the company's primary role as an EV manufacturer.
Two big questions remain: if Tesla makes itself battery-self-sufficient in the EV space, and continues to dominate the utility grid-scale energy storage market, will it also dominate the home battery market? Or will that be the one segment of the battery market where startups can make in-roads?
And then there’s the lithium problem: if Tesla becomes too committed to lithium, and lithium becomes too embedded in the company’s vertically integrated supply chain, will it be able to pivot fast enough if another battery chemistry (like sodium or others) proves itself as a more economic contender?
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