Tesla (NASDAQ:TSLA) has always said that non-auto revenues are planned to equate to 50% of revenues long-term for the company. Tesla does not regard itself as specifically an auto company as many erroneously state.
As my article in February detailed, last year showed strong growth in their energy storage business. This has a wide geographical spread and a wide usage. However, the full potential was not realised. This was primarily due to the need to divert battery production to meet soaring Model 3 demand. At the Q3 earnings update and analyst call last year, Elon Musk emphasised that energy storage supply was now back at the front of the agenda. Non-auto products were targeted to meet 50% of company revenue.
The company’s vertical integration advantages should drive this business strongly forward. Vertical integration and diversification can drive incremental revenue and provide risk protection in these uncertain times. It also enables the company to spread the high fixed costs across its divisions.
The company had been hoped that this year would see the supply/demand equation balancing out. COVID-19 puts this in doubt. We will have to see how long U.S. factory shutdowns last, how much demand is postponed due to the economic fallout, and how quickly the company can ramp up production in China.
Energy storage does nevertheless represent an under-rated potential for revenue growth, which is not reflected accurately in the stock price.
Battery Developments & Renewables
My article here detailed some of the fast-moving developments. All the forecasts show the very rapid growth of the sector. This is happening as renewables take an ever-increasing share of the energy market and as battery costs fall. Lithium-ion battery costs have fallen about 85% in the last decade.
Lithium-ion will dominate for some time but batteries will continue to get cheaper and more efficient. There is enthusiasm from different quarters for new developments such as solid state batteries, potassium-based batteries, and flow batteries. It will be some time before commercial alternatives to lithium-ion get developed.
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