Why Tesla Energy Is About To Takeover!

Will 2022 be the year of Tesla Energy? There is no shortage of signs pointing in that direction. Both from internal sources at Tesla and broader global trends that are bringing the general consumer more in line with Tesla mission statement. Which of course has always been to accelerate the world’s transition to sustainable energy. And the cars are just a small part of that equation, what the company is really about is remaking the way that the world produces energy - Tesla is not trying to be the next Ford, they’re trying to be the next General Electric. 

So let’s talk about some reasons why 2022 is going to be the time that the world finally jumps on the Tesla energy bandwagon.

Tesla Will Accelerate Solar and Energy Storage

We can start off with Elon Musk’s own words. During the Q4 earnings call in January, Elon said that the company will accelerate its solar and energy storage business in 2022. Promising what he called a “pretty vast” clean energy business from the company.

That implies that Tesla Energy still has a lot of room to grow, which appears to be absolutely true. From 2020 to 2021, Tesla’s energy storage deployments increased by 32%, this is largely thanks to large scale deployments of the Megapack battery. Solar deployments by Tesla increased 68 percent from 2020 to 2021. We also learned from Elon that Tesla’s energy business had been heavily limited in 2021, and this was due to supply chain constraints. Elon admitted that Tesla had purposely "shortchanged" the energy business in favor of expanding the company's electric vehicle production in 2021. With a chip shortage and supply chain slowdown limiting manufacturing, Elon said vehicles had taken priority. So even though this segment still grew by one third year over year, which is a very solid performance, it actually had potential to go well beyond that if Tesla hadn’t diverted materials away from energy and into vehicles. That’s pretty interesting.

And moving into 2022, Elon and Tesla seem to be much more confident that chip shortages will begin to alleviate, they definitely acknowledge it will still be a problem, but much less so than 2021. Elon said that once these supply chain issues are fully resolved, the plan is to expand production and deployment of energy products at a faster rate than vehicle production. And for the record, vehicle production has been steadily increasing at a rate between 50 and 100% year over year. So Elon is teasing that energy can more than double once it gets rolling.

He followed that up by saying, quote, "It needs to. Our primary mission is to accelerate sustainable energy and we're trying to stay true to that." And that calls back to something that Elon said a few months ago at the annual shareholders meeting in October, “Over time, we think the demand for stationary storage is going to be at least as high as the demand for vehicles.”

So, to us it’s very clear that cars are just the first step, cool cars get people’s attention, they build the brand, they make the money that pays for all of this expansion, so that over time energy can rise up and take over.

And one more interesting thing that we learned from the Q4 update was that Tesla does not expect to be cell constrained this year. Which is huge, because before the whole chip shortage kicked in, we would always hear that Tesla just did not have enough batteries to meet their production capacity. Before they started diverting chips away from their energy products to prioritize vehicles, they were diverting batteries away from energy in favor of cars. But now we have the introduction this year of the 4680 cell into production at Giga Texas, the construction of a new 4680 cell plant at Giga Berlin and the new transition for all standard range Model 3s to the Chinese made LFP battery packs. Since the first introduction of the Model 3 in 2017, Tesla have been primarily using the nickel cobalt aluminum 2170 cell made by Panasonic - it was basically all their eggs in one basket. Now 5 years later they’ve diversified their supply and stepped up internal cell production. And if there is finally enough cells, or even more than enough to meet vehicle demand, then Tesla can finally stop diverting battery resources away from energy storage.

The Megapack Takeover

We also know that Tesla is taking energy seriously because they are building a whole new factory dedicated to the Megapack battery. This is their grid scale energy storage solution. The Megapack can do everything from powering a small neighborhood up to replacing an entire power plant if you can chain enough of them together. 

And we’ve just recently seen Tesla make a point about how versatile and powerful these Megapack installations can be. On March 1st the company unveiled a 37 Megapack project near Anchorage Alaska. Yeah. This is basically a big middle finger to everyone who tries to claim that green energy doesn’t work in cold climates. This 93 megawatt hour storage facility will replace natural gas powered turbines at the Soldotna Power Plant. Tesla released their own video and update about the project, claiming that the Megapack will function in temperatures as low as -30℉ or -35℃.

Tesla writes in their update, “Alaska’s Kenai Peninsula has historically relied on gas turbines to distribute power to the community up to four months out of the year. To reduce the community’s reliance on fossil fuels to power the turbines, Homer Electric installed 37 Tesla Megapacks, providing grid stability even in freezing temperatures.”

And if we think about some other cold weather locations that are currently trying to break their reliance on fossil fuels, particularly those fuels coming from the global pariah state of Russia. For example, Finland receives 84% of their oil and gas from Russia, Poland gets 59%, Czech Republic 38%, Germany 37%. Sure, they could cut that off out of spite, and they might even be able to get away with it right now because winter is nearly over, but in the long term, there must be a real solution to this supply nightmare. And that solution is the Tesla Megapack. What Tesla just did for Alaska, they can do for anywhere in Europe. A small Megapack installation is enough to make a noticeable reduction in fossil fuel dependency. A big Megapack installation in combination with solar panels can remove fossil fuel entirely. And because of the European Union and their collaborative, open border approach, the countries of Europe could come together on one centralized green energy power plant and solar farm that would provide for all members. We’ve often heard Elon Musk muse that it would take just a 100 mile by 100 mile square of solar panels to prove electricity for the entire United States. It’s hard to imagine the US ever having the motivation or the cooperation necessary to pull off something like that. But it doesn’t sound out of the question for Europe, especially right now when they are more united than ever against a common enemy. I think there’s a world changing opportunity to come out of all this horror.

Tesla HVAC

Here’s something that we’ve never really talked about before, Tesla introducing a new line of products in the HVAC industry. We know that they have vertically integrated HVAC design for their vehicles, they use an in house designed heat pump that was introduced with the Tesla Model Y. And on that recent earnings call in January, Lars Moravy, who is Tesla's vice president of vehicle engineering, floated the idea of taking that design principle over to a home or commercial building application. He said on the earnings call that integrating a heat pump – which would replace natural gas heating – is "kind of an easy problem" and could be easier than what the team already faced with reworking heating and cooling in their vehicle. While he stressed that Tesla does not have any specific plans for this right now, Moravy said it was "definitely aligned" with the company's overall mission. 

And Elon has talked about this in the past as well. Just last summer, Elon was asked on Twitter about making a home HVAC system and he wrote, “Oh man, home HVAC that is super energy efficient, quiet & purifies the air would be great. We developed it for the car, but it can be scaled up for home use.”

And he followed that up by stressing how advanced Tesla’s system is at purifying air, which in the age of coronavirus would actually be a pretty nice thing to have in your house. Elon wrote, “Most people have no idea just how good the Tesla air purification system is. Literally 10X better than any other car. Maybe we should advertise informationally just so people know stuff like this exists.”

And this is another big piece of the puzzle, even if your electricity isn’t coming from a fossil fuel based source, the energy to heat your house is still reliant on burning fuel. If you live in any cold weather climate, any place that has winter, then natural gas heating is the standard. And that’s because up until very recently, there has been no economical way to use electric heating in a house - you’d get wrecked on electricity bills. Heat pumps change this, but so far they are expensive and there are not a whole lot of options out there. So if Tesla could design and manufacture a super efficient, residential heat pump and figure out a way to mass produce it in the same way that they can for a product like the Model Y, and get the price down to a level that makes sense for the average family. Then those of us who live in Northern climates could finally kick fossil fuel out of our lives for good.

This really starts to open up the idea of the Tesla ecosystem. Just like what Apple have done with their devices, computer and smart home products, Tesla can do the same for energy. You have your Tesla car in the driveway, Tesla solar on your roof tied into Tesla Powerwall batteries, a Tesla HVAC for your house. Even your community is powered by Tesla Megapacks. It’s some utopian dream for sure, and that’s obviously not going to be the case for the majority of people anytime soon. But we have to start somewhere - what better place than here, what better time than now?

Production Ramp Up

So, bringing this all back to reality for a second. We all know that when it comes to vehicles, Tesla has always had a problem with getting products to market and then building enough of them to keep up with demand. Will the same thing happen with energy?

Well, according to reports from earlier this year, Tesla is targeting to increase their annual megapack production capacity to as much as 50 gigawatt hours by the end of 2023. This would be a more than 10 times growth from the 4 gigawatt hours deployed in 2021. That would be insane growth and I wouldn’t blame anyone for doubting that number.

But we still have no idea what is going to happen with this brand new factory under construction in California that will focus exclusively on building the Megapack. According to sources, a full 20 gigawatt hours of Megapack capacity will be available to Tesla by the end of this year alone. And much of that growth is going to be thanks to a version 2 of the Megapack unit that will be available in an extra large size. Even though the Megapack 2 XL will have a much larger footprint and offer more storage capacity, it will actually prove to be cheaper for Tesla to produce than the existing Megapack thanks to new LFP battery chemistry. This is the same new battery that is going into the standard range Model 3, it is a much cheaper and more sustainable chemistry for lithium ion batteries. LFP uses iron instead of nickel and contains no cobalt whatsoever - so it’s much easier to source the necessary materials and these can be produced in much higher volume.