*Pre-note: In Part I of this series on Tesla, we discussed the company’s EV business, and in Part II (the one you are reading now), we’ll be addressing its Energy Storage business (Powerpack). Part III then will expand into the potential of Powerpack, Powerwall and other secondary business components.
The energy storage business has been developing for a very long time. Whether mobile or stationary in nature, cumulative R&D efforts have pulled down prices. And it was smartphones, compact computers, UPS back-up units and other mobile electrical devices that made Li-ion batteries (and other types) cost-effective. And that is when Elon Musk came into play and decided to invest in EVs and storage. But make no mistake: Mass energy storage is nothing new. Tesla didn’t “invent” mass energy storage (batteries). This technology has been around for many years.
Back in the 1960s, Ford (F) had attempted the same thing, utilizing another battery type however: the NaS battery. And well, it failed. Luckily, Tesla (TSLA) has invested in another battery type (Li-ion) that has been tested for a long time on various devices. So, the relevant specifications were well known (pros and limitations) when the company was formed.
But Tesla is nevertheless playing a dangerous game. You see, the company is “all in” on a single technological group that consists of: the electric motor, mobile Li-ion batteries and stationary Li-ion batteries. What are the pros and cons of such a bet?
So Tesla is an energy company. It’s not about the fact that it sells cars. What really matters is what’s underneath those cars. Namely, batteries that can store energy in chemical form and transform it into electricity. We could therefore assume that the real reason Tesla is selling EVs is to fund battery tech. And the EV market was the only eligible one (demand for EVs is a side-effect of the renewable energy revolution, veganism and other cultural alterations).
EV (mobile) batteries are in reality serving the same “core” purpose as stationary/grid batteries. They are required to store a lot of energy, be able to transform it into power (electricity) - and all that in a cost-effective manner. Those two categories (mobile, stationary) have some variations when it comes to characteristics: EV batteries need to be light, have space limitations, fast charging capabilities and quick reaction times. Stationary batteries need to have a larger cycle life and store more energy overall. Space and weight come in after that. We’ll talk about all of that in this article.
Next question then: Since Tesla is heavily investing in energy storage, shouldn’t that mean Elon Musk believes it to be something very valuable? Well, it is.
You see, evolution for humanity was always “storage-based”. Being able to store food allowed for larger societies to be formed. Being able to store knowledge allowed for science to expand (among other things). Being able to store energy, aside from power production efficiencies, re-establishes something that was lost when large communities were formed: self-sustainability.
Right now, if a major power line was damaged, a complete regional blackout would occur. During the Great Ice Storm of 1998 (relevant article), a prolonged power outage caused deaths in Canada - a situation that could have been averted if regional energy storage facilities were available, coupled with “cheap” power producing units (e.g., renewables).
Being able to store large amounts of energy will allow for further self-sustainability projects to flourish. The ones that require uninterrupted supply of electricity, like “vertical” advanced farming technologies.
In reality, energy storage is the new revolution, not EVs as commonly stated. EVs are basically the result of attaching a Li-ion battery on a nearly conventional car (nearly because the engine is an electric one). EVs are being developed and sold to ultimately fund R&D for battery tech. They are a by-product.
Now let’s talk about what Powerpack (stationary energy storage) has to offer:
(a) Market efficiency equals lower prices: Being able to store electricity in the form of electrochemical energy means that it can be sold at a future date. We can now move beyond “spot” prices, something that will make the electricity market more efficient. And this will ultimately drag prices lower.
Households as well as businesses will also be able and store energy when prices are lower and use it when prices are higher (or sell it). Contemporary installations have the necessary software to do this process automatically (store when prices are lower and vice versa). This holds both for Powerpack and Powerwall.
(b) Renewable energy power plants become more efficient: Conventional power plants/facilities (e.g., coal power plants) have an automated mechanism that limits energy loss. They can adjust the production of electricity based on demand. Renewable power plants, on the other hand, do not have that capability. When the sun shines, for example, if all the energy produced is not instantly consumed, it is lost. Powerpack can bring an end to these inefficiencies. And in doing so, it will transform the entire renewable energy sector, making plants more efficient, and hence, indirectly less costly. This will give the sector a major boost.
Powerpack can also be utilized to solve another issue renewable power plants are facing: variations in the power output stream. When the wind is blowing strong, a wind farm installation can produce a lot of power, but when it stops blowing as much, it produces less. Being able to temporarily store the extra energy generated will allow for the output to even out, making renewable power plants more effective.
Please note that at current storage capabilities and cost-effectiveness levels, energy storage is mostly offering efficiencies (e.g., renewables). It also adds to the quality of our life (e.g., blackouts). In the future, we’ll be able to store vast amounts of energy, which will allow power companies to “pre-produce” electricity and even trade it internationally. At that point, stored energy will become a common commodity, ready to be bought and sold on demand.
And since storage technology is still at its early stages, it would be wise for us to dampen our expectations a bit. An example of premature hype was that of the 3D printing industry (see graph).
As you can see from the graph, when expectations were not met prices normalized (of course, at that time a raw material crisis was unraveling). Since then, stock prices have remained low.
Tesla’s Powerpack product is not just competing with other similar technologies (electrochemical batteries). There are a variety of energy storing options:
And we should note that batteries are not the cheapest type when it comes to stationary energy storage (strictly in terms of operating costs, not installation costs). But growing EV sales could indirectly change that. Wikipedia sums up the most common storage types (technologies) for us:
“Common examples of energy storage are the rechargeable battery, which stores chemical energy readily convertible to electricity to operate a mobile phone, the hydroelectric dam, which stores energy in a reservoir as gravitational potential energy, and ice storage tanks, which store ice frozen by cheaper energy at night to meet peak daytime demand for cooling. Fossil fuels such as coal and gasoline store ancient energy derived from sunlight by organisms that later died, became buried and over time were then converted into these fuels. Food (which is made by the same process as fossil fuels) is a form of energy stored in chemical form”.
What’s pretty amusing is that fossil fuels such as coal are, in fact, a product of solar energy. Just a note.
Now, before we start “talking battery”, we should one last time stress out the significance of electrochemical energy storage to humankind. Aside from the various applications, the fact that people have been developing this technology for two centuries now (even before the days of Alessandro Volta) means that it is believed to be of great importance. Revolutionary even. And we should therefore expect breakthroughs to keep happening (lower prices, higher storage capacities, etc.).
We are all pretty much familiar with lead-acid and alkaline batteries. The latter cannot be recharged, and are therefore not relevant to our discussion. Lead-acid batteries, on the other hand, can be recharged. And they have been used extensively, for e.g., in conventional (combustion engine) cars.
Many believe that lead-acid batteries will become obsolete. This statement could become a reality if Li-ion battery prices were to drop to $100 per kWh or lower. But until then, lead-acid batteries will serve a different purpose: cheap energy storage.
Note: Currently, recycling lead-acid batteries is a profitable venture. This is not the case for Li-ion batteries, even though lithium is 100% recyclable.
Tesla is only working with Li-ion batteries. Generally, this is a smart choice because their specifications are very balanced. The cost per kWh, the power and energy densities, the temperature range these batteries can handle, the charging speed, the reaction speed and other characteristics are all balanced. At least when compared to other types (table).
As you can see from the table, lead-acid batteries are cheap (last column) but have a low cycle life. NaS batteries seem to be more balanced but have other specifications that are problematic. Flow batteries have a tremendous cycle life but are quite costly and have a low reaction speed. We’ll discuss all of them in this article.
Tesla is utilizing two Li-ion battery technologies: the Nickel Cobalt Aluminum chemistry battery (NCA) and the Nickel Manganese Cobalt chemistry battery (NMC).
(a) The NCA battery is used in Tesla’s electric vehicles. It has a high energy density, which means that it can store more energy per unit of measurement. As a result, it takes up less space, which is an important requirement for EVs.
(b) The NMC battery is applied to the Powerpack product. It has a longer cycle life, but takes up more space (it's also more heavy) because it has a lower energy density.
*Note: By cycle life, we mean how many times a battery can charge/discharge before its maximum charging rate drops below 80%. As for the power-energy difference, think of it this way: How strong my punch is (power) as opposed to how many punches I can make before I get tired (energy). The latter is measure in Wh (or kWh etc.) and power in Watts (or kW etc.).
Now, since both products (EVs and Powerpack/Powerwall) use the same battery type (Li-ion), Tesla benefits from accumulating knowledge and cutting costs. Utilizing a variety of types would make R&D less efficient. And this is one reason Powerpack 2 managed to cut costs from $470/kWh to $398/kWh - various specifications also received an upgrade.
Critics, though, note that based on the Australian project, the actual price range is $500-600/kWh. And for that specific project, it is true. But we need to remember that transporting the equipment all the way from the US to Australia (by sea) will cost more. Smaller projects will also be more expensive because there are less efficiencies.
Fortunately, the Australian installation is not losing any money. Quite the opposite, actually. Governments are, of course, less price-sensitive. Their main concerns are expanding the quality of life for their citizens and winning votes in the process. Private enterprises, however, want to profit from such investment. And they are opting for a reasonable period during which additional profits will pay for the investment (up to 3 years on average). Only once the “refund” has taken place will they be generating actual “net” profits from that particular investment.
Unfortunately, Powerpack battery units (NMC) will have a slower pace of price reduction when compared to EV batteries (NCA). And that is because there is limited room for installation expenses to decline. As the graph below depicts, eventually installation expenses will cover the bigger part of the overall battery pack cost.
EV battery prices will be declining much faster because of economies of scale (retail product). And the fact that Powerpack is mostly a B2B venture means that the product is more price-sensitive. To exemplify the statement: A Model 3 “consumer” could buy the car just because he/she likes how it looks, even if he/she doesn’t really need it (not really cost-effective).
The extra cost, however, brings in extra benefits. The NMC battery (Powerpack) has a much larger cycle life.
(a) The NCA battery in a Model S has a 300-600 cycle life range, and the new “21-70” version of Model 3 has twice that range.
(b) A Powerpack battery stands at 2,000-5,000 cycles.
And then there is the Megapack, the battery unit that is supposed to power the planned 1.2 GWh installation in California (shared construction project). What will be the cycle life of that one? Will it be utilizing different Li-ion technology?
Note: When we state 300 charge/discharge cycles, we mean complete cycles. So, for example, when your Model S is 70% charged and you re-charge it up to 100%, that does not constitute a complete cycle. Re-charging from 0% to 100% is a complete cycle. Of course, Li-ion batteries are not expected to discharge completely (that would damage the battery).
As a final note, allow me to remind you that forecasts are based on a number of assumptions that could turn out to be wrong. Just think of what goes into these reports/graphs that predict Li-ion battery prices to keep declining until 2030: raw material prices, competing technologies (e.g., a new battery type or new chemistry mix), recycling capabilities (if recycling remains unprofitable, raw material prices will not drop as much), government subsidies, etc. How can anyone really know how these components will play out 5-10 years from now?
So please, if you have invested in Tesla, make sure to review these assumptions every 6-12 months. And if the assumptions made are no longer valid, review your thesis.
To avoid confusion, let me prepare you for what comes next. We will first discuss a variety of alternative batteries (Alt 1-3) that will compete with Tesla’s Powerpack business. And right after that, we will re-assess whether Elon has made the right choices (utilizing Li-ion technology exclusively).
Elon Musk believes that flow batteries will be the future of mass energy storage. Yet, the company he manages is fully invested in Li-ion battery technology. Elon understands that sourcing V2O5 Vanadium Pentoxide would be hard, since only a handful of nations have reserves. Of course, his plan is to monopolize a battery type that can be utilized for both mobile and stationary purposes. Vanadium Redox Flow Batteries, therefore, would not be the ideal choice.
In any case, the vanadium redox flow battery type is in direct competition with Tesla’s Powerpack business. Of course, not in terms of technology (the two battery types have different characteristics), but rather in relation to the energy storage market as a whole. That is, VRFBs will eat up a part of the market that would otherwise invest in Li-ion storage solutions.
(1) Characteristics (specifications and more)
So, let us start with the “neutral” characteristics of a VRFB:
Now let’s discuss the negative characteristics a bit (no trade-offs here):
And finally, we should also get acquainted with the positive characteristics of VRFBs:
*The generation 3 formulation using a mixed acid solution developed by the Pacific Northwest National Laboratory operates over a wider temperature range, allowing for passive cooling.
Please note that there are other characteristics as well, but we won’t be mentioning them all in this article.
(2) Tracking the battery cost
Now, before we talk about the planned and already operating VRFB projects, allow me to remind you that demand (growth) is directly related to the price of an installation/pack. Earlier, when we discussed Li-ion batteries a bit, we recognized that installation costs will only witness mild reductions moving forward. So, it would be wise to review what the cost of a battery cell (or pack) depends on:
So, as you can understand, it can be very challenging to track the potential cost development of a battery. That is especially true when chemical mixes are ever changing. An example of such a case would be Tesla’s continuous efforts to reduce the amount of cobalt that is being used in its batteries. And when chemical mixes change, a battery’s “sensitivity” towards certain raw materials (price fluctuations) changes as well. This statement essentially proves that forecasts on the matter remain theoretical and broad, and therefore, neither objective nor reliable. Make a note of that.
(3) Geo-economics: China is winning the war for the future
There are a couple of “large” VRFB projects in operation:
The grid battery attached to the Tomamae Wind Farm in Japan (2005) drew my attention, particularly because the nation has been investing heavily in NaS batteries (sodium sulfur batteries, Na = sodium and S = sulfur). NaS battery technology advanced substantially after 2000, around the time when the mentioned VRFB installation was constructed.
So the question now is: Did Japan abandon vanadium batteries because the technology was not as promising? Note, however, that Japan has easy access to the raw materials NaS batteries need (sodium, sulfur, ceramic), as opposed to V2O5 Vanadium Pentoxide. We’ll discuss NaS batteries in some detail later.
The good news for the chemical energy storage business is that large projects finally start happening (vanadium- and lithium-based). Nations like the US, Japan, Australia and China are among the major investors.
China, in particular, has quite a few projects planned. It is currently constructing the world’s largest vanadium redox flow battery station, standing at 800 MWh. It is “bigger” than Tesla’s ESS in Australia (129 MWh) but “smaller” when compared to the planned 1.2 GWh project in California. Of course, the latter two projects are Li-ion battery-based.
Now the project (800 MWh VRFB installation) has been taken on by Rongke Power, a company which builds its battery packs into containers. Organizing packs into containers allows for lower transportation and installation costs. Unfortunately, according to Mastermines Research, the construction of the project will be postponed to 2020 (initially, it was planned to finish by the end of 2018).
So, China will not be the nation to build the largest chemical (battery) energy storage facility in the world. But it seems to have the upper hand concerning raw materials needed for the unraveling energy revolution.
(a) In Part I of this series, I mentioned that China has the second-largest reserves of lithium (after Chile). But it also is number one when it comes to vanadium reserves. Luckily, China’s new “alliance” with Russia (the nation with the second-largest vanadium reserves) is paying off.
Those two countries could form the OPEC of vanadium and manipulate prices to their benefit.
(b) But there is more. Russia also produces nickel and aluminum.
(c) And combined, China and Russia produce approximately 10% of cobalt (global production rate).
(d) Russia’s “newest ally”, Turkey, owns the largest reserves of graphite. China has the third-largest reserves and is currently the world’s largest producer of graphite.
So, the Asian giant has access to all the necessary raw materials to bring on the energy storage revolution and export it to Europe (and partially to Japan). Competing powers should normally target China’s energy imports (the country is running out of oil reserves, and its natural gas is mostly in deep shale form), but that would be hard to manage (well-diversified imports). “Taking away” Russia, would be a much more realistic strategy. Of course, “realistic” is a relative term in this case.
There has always been an “energy problem” in Japan: a lot of demand, but limited domestic production. Wasting energy, therefore, is particularly “expensive”, and utilizing batteries that are highly efficient is very important.
The nation has been experimenting with vanadium-based batteries in the past. But this type of a battery has (or at least had) a relatively low efficiency rate and is also less effective when “attached” to power grids (no instant reaction time). So, Japan had to look elsewhere, and its scientists came up with an acceptable alternative: The NaS battery (Na = sodium, S = sulfur).
It is really interesting to know that Ford was the pioneer of this battery. Back in the 1960s, the car company had tried to produce an electric vehicle powered by NaS batteries (Elon was not the first to dream of an EV for the masses). The project failed, but Japan later utilized the generated knowledge to develop stationary energy storage capabilities.
*The above link is an interesting read because it was written in 2011. Back then, Li-ion batteries were not yet believed to be capable of powering a long-distance EV. This is a great example of how technological advances can be swift and unpredictable. And it proves how way off reports and forecasts can be in this industry. There are so many battery types currently under development. Nobody knows when the next breakthrough will happen (and for which battery). Make a note of that.
Contemporary NaS batteries are quite efficient and can store vast amounts of energy. They also have a long cycle life. Here are some important characteristics:
The latter characteristic has been a major hazard issue for stationary energy storage installations as well. There has been a reported accident in Japan with a fire breaking out in one of its NaS battery installations. Since then, new projects have been fewer.
In short, however, let us point out that at the moment, NaS batteries are only eligible for stationary/grid applications (not mobile). And aside from Japan, the US and other nations also have some stations in operation. But as you can see on the graph, Japan has by far the largest capacity installed - with 167 sites in operation. An example of a well-known NaS battery construction company is NGK.
Now, over the years, there have been a lot of developments. Both the US and Japan, for e.g., claim to have managed to reduce the operating temperatures down to around 100°C (the claims were made in 2009 and 2010 respectively). And a relatively recent MIT breakthrough has made NaS batteries more resilient.
In comparison, the NaS battery seems to be competing directly with Powerpack’s NMC Li-ion technology, as well as with VRFBs. Although the latter battery type (VRFB) is not inflammable and does not explode (overcharge), NaS batteries have a similarly long cycle life, have an instant reaction time (like Powerpack), and become cheaper the larger the project. Hence, NaS battery technology can become a threat to Tesla’s Powerpack. Right now, however, Li-ion batteries remain “King”, as they are balanced in every way (cost, cycle life, reaction time, energy density, efficiency).
So far, we’ve covered pure chemical batteries of various types. But what about battery mixtures?
I’m pretty sure that you’ve all come across capacitors at least once in your lives. They are everywhere, even inside your computer. Supercapacitors (also known as Ultracapacitors) are a stronger breed and could, in theory, power an EV sometime in the future.
Supercapacitors have promising characteristics: they last for a very long time (cycle life), they can charge almost instantly, and they are able to withstand a wide range of temperatures. They also do not explode and are non-inflammable.
They have low energy density but enormous power density. To understand what that means, think of them like a small bottle with a large opening and Li-ion batteries like a large bottle with a small opening. The latter lasts longer and can store more energy, but Supercapacitors can discharge a lot of power in an instant. They pretty much work like the flash of a camera, instant strong light that lasts for an instance. This characteristic (enormous burst of power) makes Supercapacitors an eligible candidate for weaponization. In fact, China is already in the process of developing a strong laser weapon.
Supercapacitors are being used in power grid networks but cannot be used for mass energy storage (they manage power output). Combining them with lead-acid battery technology, however, is changing that. This type of a battery is called the UltaBattery, and a couple of energy storage projects are already in operation.
UltraBatteries are almost as efficient as Li-ion batteries (90-94%). They have a cycle life well above 260 cycles for mobile purposes (EVs), and for utility purposes they “run” for much longer.
Let us also talk about price sensitivity. When demand for Li-ion batteries picked up, a lot of investments needed to be done (and more are still needed) to increase the output capacity. These investments need to be “reimbursed” at some point, which translates into Li-ion battery prices declining slower as we move forward (i.e., producers will need to sell Li-ion batteries at higher prices to pay for investment “costs”). Higher demand for Li-ion batteries also sparked the need for greater raw material output capacities. This expansion brought volatility in lithium, cobalt, and other metal prices (due to supply volatility), and this will again reduce the speed at which battery prices decline (companies will set a margin of safety so that minimum margins are always maintained).
UltraBatteries are lead-acid based, a type which is 100% recyclable. This means that relating raw material prices will fluctuate less, because more indirect supply is generated (recycled materials can be re-used). And while demand might increase drastically for UltraBatteries, the baseline capacity (production facilities) is already set. Lead-acid batteries have been around for a long time now, and no extra capital is required to boost output.
Still, I personally think that UltraBatteries will probably not compete with other mass energy storage battery types (Li-ion, Flow) for large projects. They will instead focus on small-scale storage projects (2-3 container packs) and power conventional cars (regular batteries), hybrid vehicles, and electric motorcycles. All electric vehicles are currently well-covered by Li-ion battery specifications.
In conclusion, the future of batteries seems to be in mixtures. We have already discussed UltraBatteries (Supercapacitors + Lead-Acid battery), and we also have the Li-ion Supercapacitor (Supercapacitors + Li-ion battery), although the latter isn’t really comparable with the former (is not actually a chemical battery mix). Flow batteries have also been tested in combination with supercapacitors, but Li-ion mixes should be the most interesting formations due to the coupling of high energy density and high power density. The future could look very bright: instant recharging capabilities, enormous power densities, a theoretically unlimited cycle life, and enormous energy storage capacities. And there should also be no dangers relating to explosions and inflammation.
How environment friendly a battery type is will depend on the level of recyclability. At the moment, only lead-acid batteries (and therefore, the UltraBattery as well) are truly recyclable. And by “truly” I mean that the process of recycling them is a profitable business venture (companies that recycle LA batteries are profitable). Li-ion batteries can be recycled up to 97%, but the process is not profitable (for now). Although for Tesla, a company that is recycling its own batteries, this might not be the case.
Although there are more contestants appearing, for e.g., the Proton battery and Rechargeable Aluminum batteries, we will not be discussing them. We investors will, however, need to remain on guard for any new developments and battery types (particularly mixtures). Things could move faster from here on, as the world is ready to invest in the energy storage revolution and the battery revolution in general.
As for Tesla, it seems to have made the right choice concerning NMC stationary/grid battery technology (instead of LFP). Musk has been tracking the market, and the NMC mix is covering the “middle ground” - i.e., is highly cost-effective (cost versus utility) compared to other battery types. This should allow his company to cover a bigger part of the energy storage market. So, "he knows what he is doing" (it seems).
In essence, however, all three batteries noted in the table below (Flow, Li-ion, Lead-Acid) will “survive”. Each one of them serves its own purpose/market (large-scale energy storage, grid assistance/back-up power/mid-sized energy storage, small-scale back-up/small-scale energy storage). And together, they offer a complete energy storage package.
Battery Cost Range**
Service Life Range**
Vanadium redox flow battery
$315 - $1050 per kWh
12,000 – 14,000
Lithium-ion (NMC, LFP)
$200 - $840 per kWh
1,000 – 10,000
Flooded lead-acid battery*
$105 - $473 per kWh
250 – 2,500
*The UltraBattery will take over at some point.
**Price and cycle life ranges are broad assessments.
NaS batteries and other types are competing for these 3 broad levels/utilization purposes (depending on specs). Now, according to IRENA, prices are expected to decline by as much as 30-50% per type by 2030. But remember what we’ve said about forecasts: too many moving parts, do not trust them.
Aside from rival companies, Tesla will also be competing with countries as a whole. Various nations around the world seem to be placing different bets concerning what battery type is to prevail:
The same “deviation” holds for EVs as well (partially), with various car companies around the world betting on NCA, LFP, hydrogen cell, LPG, and even flow battery technologies to power vehicles. This is wonderful, because diversification and competition will accelerate the energy and battery revolution.
Superior technology will single out industry leaders. And superiority will not only depend on cost ($/kWh) but also specifications and capabilities in general. Tesla has proven many times before that it is the "front-runner" when it comes to cost-effectiveness (cost + utility). It has managed to expand its Powerpack business much faster than other companies and is now in collaboration with many nations.
It is, however, very important to remember that the Powerpack business is still developing (slowly) and can therefore not "carry" the Tesla organization. The potential of the EV business (revenues) is what investors take into account when justifying the company's enormous debt (highly leveraged) and stock dilution rates. All of that funding goes into expansion (new production facilities) and R&D (batteries). A slowdown could prove to be detrimental for the company. And the same holds for profits, as it needs to keep generating them.
What's next: In the next part, we will be discussing Tesla's secondary business potential as a whole (Powerpack, Powerwall, Solar, Leasing, and other sub-businesses). And right after that, we'll take a deep dive into the company's financials.
This article was written by
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.