The small lithium-ion batteries that Tesla Motors Inc. (Nasdaq: TSLA) uses to power its luxury $70,000 (base price) electric cars look very similar to the AA batteries you put in your television remote. They're about 2.5 inches long and the Tesla Model S sedan uses thousands of them to travel for 265 miles on a single charge.
But the applications for these tiny batteries are much bigger than just electric cars...
You see, Tesla Motors' Chief Executive Officer and Founder Elon Musk is also the Chairman of the SolarCity Corp. (Nasdaq: SCTY), the largest provider of solar power in the United States. Together, the two companies are working to make solar power ubiquitous in the United States - with the help of the lithium-ion batteries.
That means within the next decade, these tiny energy packs will not just power your car, but your home, your neighbor's home, your children's schools, your entire city...
Tesla and SolarCity's Massive Power Plan
SolarCity has founded in 2006 and currently has more than 6,000 employees. The company serves tens of thousands of customers in 15 states, and runs 45 operations centers.
Aside from residential customers, SolarCity also serves more than 400 schools, government agencies, and corporate clients.
In classic Elon Musk fashion, he has applied "out of the box" thinking to SolarCity's business model. Instead of charging customers for the solar panels (which can cost thousands of dollars each), SolarCity provides them free-of-charge, and then charges for the solar power itself.
However, one of the biggest problems with solar power on a massive scale has always been its reliance on a city's power grid. Right now, solar power draws minimal resources from the grid because it's still not widely accepted, but a widespread adoption of solar power could strain a city's resources.
That's where Tesla's lithium-ion batteries come into play.
By including the tiny batteries in the solar panel, SolarCity's panels would be self-sufficient. Say a large cloud passes over a customer's house; instead of drawing electricity from the city's power grid, the batteries will take over.
Right now, the batteries used to back up solar panels are too large for residential application. The small, but powerful, lithium-ion batteries appear to be a natural solution.
And like the solar panels themselves, SolarCity also plans to provide the batteries to customers for free.
That's important, because one of the biggest arguments against Tesla's batteries has been their price tag. While the Tesla Model S is a luxury sedan, one of the main reasons it has a base price of $70,000 is the batteries.
But that price issue is something Tesla is already addressing. In fact, the company is about to spend $5 billion to eliminate the problem...
The Role of TSLA's Revolutionary Gigafactory
Currently, Panasonic develops the batteries that Tesla uses to power its vehicles. In 2013, the companies formed an agreement where Panasonic would provide Tesla with 2 billion batteries over a four-year span. A rough estimate (accounting for 7,000 batteries per vehicle) means that Panasonic could provide enough power for about 71,000 vehicles annually.
But in September, Musk announced he's building a "Gigafactory" in Nevada that will dramatically ramp up production of lithium-ion batteries.
The company's current timeline calls for construction to begin by the end of 2014. The plant should be operational by 2017, and reach maximum output capacity by 2020. At that point the Tesla Gigafactory will produce enough batteries to power more than 500,000 vehicles annually.
That's more lithium-ion batteries per year than were produced in the entire world in 2013.
Tesla expects to spend around $5 billion on the construction of the factory, which will employ approximately 6,500 people.
The company expects that increased production will bring the price of the batteries down by 30% by 2017.
Panasonic will still be a partner in the Gigafactory, but the new facility will allow both companies to produce the batteries more easily and cost efficiently.
"The economies of scale and design leverage from car battery development and related technology and bring grid applications for stationary storage to an incredibly competitive cost point," Tesla's Cofounder and Chief Technology Officer JB Straubel told EnergyBiz. "We see a huge opportunity to further enable renewable energy and efficient demand management for buildings and houses."
A change in production costs is a major turning point for the solar power industry. According to Money Morning's Global Energy Strategist Dr. Kent Moors, high costs have historically held back solar power from achieving mass appeal.
"Solar power is renewable, it's great for the environment, and it can be produced right here at home - safely insulated from the ups and downs of global politics and market bottlenecks," Moors said. "But there has always been one big problem with solar - the price. For years now, its high cost has always been the biggest weapon in every critic's arsenal."
Musk and his cofounders have always been most interested in improving the world they live in. By providing free solar panels and spending billions to revolutionize battery production, they have the entire energy industry in mind - rather than just thinking of their own bottom line.
"Being an automotive company is our home base and it's where our core competency is. But we always have had a deep expertise in energy technologies," Straubel said. "It was part of our founding focus. We are pushing into different product bases and probably will continue to do that. It's still early for stationary storage. It's a small part of our business, but we see a huge potential. It's something that both Elon Musk and I are excited about and quite committed to."
It's that type of innovative thinking and dedication from Musk that has Money Morning's Chief Investment Strategist Keith Fitz-Gerald bullish on TSLA stock long-term...
TSLA Stock's Huge Long-Term Potential
"Tesla is on track to see a stock explosion that will make its surge back in the spring of 2013 look like a speed bump," Fitz-Gerald said.
And for Fitz-Gerald, it all starts with the man in charge...
"You hardly ever see this recognized in the mainstream media, but Tesla has one irreplaceable asset that also happens to be its greatest advantage over its competitors," Fitz-Gerald said. "The company has been blessed with the most innovative CEO on the planet: Elon Musk."
"Creativity as a thinker who can't be boxed in by entrenched competitors, the ability to cheerfully put tens of millions of his own money behind his vision when necessary, a solid grasp of what technology means for the industry he operates in... all of these are great qualities in a CEO. Any company, big or small, is lucky to have a chief executive with just two of them. Tesla has all three in Elon Musk."
More about Tesla: TSLA is one of the most volatile short-term stocks on the market, so it's not the perfect investment for everyone. However, for these types of investors, it's a great option...
Related Articles:
- Technology Review: SolarCity, Using Tesla Batteries, Aims to Bring Solar Power to the Masses
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