During Tesla’s Q3 2020 earnings call, CEO Elon Musk noted that this was Tesla’s “best quarter in history.” Most of the revenue came from Tesla’s automotive business. However, if you look closely, you can see the leaves of Tesla’s energy business rapidly unfolding as this side continues to grow.
The Motley Fool took notice of Tesla’s energy business growth and made a few points about how Tesla’s Q3 results are aligning with Elon’s vision of Tesla’s energy business growing to around the same size as its automotive side.
The Pace Of Tesla’s Battery Shipments Is Accelerating
In Q3 2020, Tesla shipped 759 megawatt-hours worth of batteries, which was an 81% increase from Q2’s 419 megawatt-hours. On the automotive side, Q3’s shipments totaled 139,593 units, which was an increase of 54% over Q2’s 90,650 units. In its earnings update, Tesla pointed out that the production of its Megapack is continuing to ramp up at the Sparks, Nevada, Gigafactory and that volumes more than doubled in Q3 2020 compared to Q3 2019.
Tesla Solar Increased By 111% From Q2 2020
Tesla’s solar shipments have increased by 111% from the previous quarter, and this is more than twice the amount compared with Tesla’s 2019 Q2 to Q3 increase, which was 48%. Fool noted that in a year when the industry as a whole was expecting a 25% decline in rooftop solar installations due to the coronavirus, this is noteworthy. Fool also pointed out that Tesla’s solar business appears to be stabilizing as we move into the next and final quarter of the year.
One reason as to why Tesla’s solar sales have increased is due to the cost of creating solar panels. Elon Musk told CleanTechnica that Tesla was able to cut out a lot of the soft costs of solar. “Solar panel cost is only ~50 cents/Watt. Mounting hardware, inverter, and wiring is ~25 cents/Watt. Installation is ~50 cents/Watt, depending on system size,” Elon told CleanTechnica Director Zach Shahan. “The other solar companies spend heavily on salespeople, advertising, and complex financing instruments. We do not.”
Fool’s Conclusion: Tesla’s Energy Business Isn’t Very Profitable Now, But Could Be Within 3 Years
The article pointed out that if Tesla’s energy business was a startup, it would be at the stage of “buying the market share,” which means sacrificing margins to establish itself in the market. When comparing this to the gross margins of its automotive business, Fool cited that the margins of Tesla’s energy business are low and look to be going downhill.
The article also said that this is actually a good strategy if Tesla believes that something will happen in the future and that its storage business may have a good ramp to high market share. Back to Battery Day, Elon Musk detailed several product enhancements that will lower the cost of battery storage components by up to 56% within three years — a type of cost reduction that would improve Tesla’s energy margins.
The article also noted that Tesla gave a range of where it may be headed for 2021. Its vehicle shipments could grow between 70% and 100% next year, and its storage shipments are expected to grow 100%, with additional significant growth coming from its solar segment.
Renewable Energy Growth 2021
PV Magazine listed 5 predictions for the corporate renewable energy market next year. Interestingly, social justice, the article noted, will be key in this respect. Companies that support Black Lives Matter and other social justice initiatives want to focus on the diversity of their own employees and will take this to the next level. They will do this by reevaluating how they advocate for social justice through their actions — business practices and procurement. Microsoft, for example, aims to procure in “communities that are economically under-resourced, disproportionately impacted by pollution and/or lack access to the benefits of the clean energy transition.” Salesforce is listed as another leader in this space and recently published “More than a Megawatt,” which provides a foundational framework and guidance for third parties on maximizing the positive impacts of renewable energy purchases while minimizing the negative impacts.
More companies will aim for the goal of being 100% renewable at all times, not just in net. Google is leading the way in this by aiming to be 100% renewable every hour of every day. Google also wants to completely eliminate the need for fossil fuels by matching the time of renewable energy generation to the time the energy is consumed. More companies will also commit to reducing Scope 3 emissions through supply chain programs, and storage will be added to PPA portfolios. The final prediction is that the need for speed will drive innovation. Many of the tech companies (especially those listed in the article) have sustainability targets set for 2030 — which is less than 10 years away as we finish up the last quarter of 2020. Time is on the move and companies are going to speed up innovation just to keep up.
How This Affects Tesla
Everything is linked. When the focus is on renewables, especially solar and storage, people will do the research to find who offers the best prices. Tesla’s Megapack is in high demand, and Australia is in the process of getting another record-sized one. This one will be even larger than the Hornsdale battery and will have the following power and energy capacity: 300 MW/450MWh. In Canada, TransAlta Renewables also announced that its WindCharger wind farm will be powered by Tesla Megapacks. Regarding rooftop solar, Tesla typically offers the lowest price.
Many will see Tesla as a viable option for their own personal home energy plans or their business needs. Whether it’s an employee, a family member, or a friend, someone who owns a Tesla, or someone who knows a lot about Tesla, more people will fuel Tesla’s growth in 2021.
Disclaimer: I am a Tesla shareholder, with a few shares, but nothing above is investment advice of any sort.