Tesla seem to be doing very little in regards to their energy business, at least
nothing substantial when compared to the auto business, and actually barely any growth either,
there is minimal consistency quarter over quarter. These batteries are currently worth a lot more
when deployed into vehicles. So it makes sense from a business stand point to allocate them to
what generates the most profit. I believe at the moment they use pretty much just whatever
excess batteries they have that aren't being used in autos, get used for energy storage.
But not only that, we are consistently seeing losses with energy too.
Which is probably extra incentive to not grow that side of the business too much.
So lets go through the megapack business to see if we can work out the potential it might have,
and at the end of the video I try and calculate what it might mean for the stock price.
We do have a good case example though, Tesla's battery in Hornsdale South Australia. It saved
customers over AU$150 million in just a 2 to 3 year period. And was then further extended again,
all up with a total cost of AU$172 million. And has 193 MWh capacity.
Tesla likely built this at an overall loss, but probably wasnt too far off break-even. It was
so long ago I believe they used 18650 batteries. So if they used 2170 batteries today, then Tesla
could probably build it cheaper. Of course 2170 batteries are far from ideal for energy storage.
But the point I am trying to make is that Australia had about a 40%
return on investment with purchasing the batteries. That is huge,
and obviously worth doing. Ok sure, Australia does have high energy costs, and they were suffering
from black outs, which makes it even worse. But either way, it has served as a great product.
But since then we know LFP batteries are ideal for storage, and cost significantly less. And
then on the Q2 call, we just heard that Tesla are eventually launching their own LFP batteries.
It is somewhat believed that the 4680 batteries will get down to about $55/kWh at the pack level,
at least eventually. Now as amazed as I was by these numbers,
that circulated around somewhat after battery day, I assumed that this would have been for
the iron based cathode. But now we have just heard that the 4680s will only be nickel based.
In other words Tesla's LFP batteries will cost quite a bit less than that again.
Now an iron based cathode is about half the price of nickel already, but then also Tesla will make a
new form factor designed around LFP, perhaps one for energy storage and one for vehicles. Which
will in turn be an even more cost effective form factor for its purpose. So we could be seeing LFP
batteries at $25-30/kWh at the pack level. This is absolutely ridiculous. I really cant believe it.
It doesn't sound like Tesla can start producing LFP batteries actually until 2022
due to the patent being exclusive to China. But CATL have actually also been working on
sodium-ion LFP batteries which sound like they might have potential too. There is still an
insane amount of research and development left for batteries still, and by the time Tesla do
release their LFP battery then who knows what level they may actually achieve by that stage.
Ok, so Tesla have also released their price list for the Megapack battery storage.
Elon also said Megapacks are sold out through until the end of next
year. They have one and half years of back orders already to fill.
In other words, this is another Tesla product that is far from constrained by demand.
Now if I ordered a 100 MWh Megapack, then the price is $29m excluding taxes.
Ok, so 100 MWh is 100,000 kWh. If Tesla are at $30 per kWh, then that's $3m cost at the pack level.
And they are selling for $30 million. Ok this is the cost of the battery pack,
and there is obviously much more to it than that. Such as land, and all the connectivity associated,
along with labor, transportation, it all adds up. Now I am being a little speculative here,
but if we doubled the cost from $3m to $6m installed then that is 80% gross profit margin.
Ok even if it was $7m more to install, which I would have thought was highly
conservative by this stage, then we are still at nearly 70% margin.
This is absolutely crazy. I was not expecting this.
Ok, so how much income does Tesla stand to make from these batteries for energy storage.
Well I think we can stick with the assumption that every battery made can be sold,
and at these margins. So the question comes down to, how many of these batteries can Tesla make?
Now at a guess the Australian battery would have been $130-150 at the pack level. If
we are now down to $25-30. Then this is about 1/5th the cost of what it was when installed.
Of course that battery was nearly 200 MWh, but only initially around 150 MWh in the first stage,
and that managed to save around A$150m in the in 2.5 years, or around US$40m a year. So if
now that battery even cost $15m, it was giving $40m of value a year. Again though, in South
Australia it does have more value, than a lot of other areas. But still I think you get the point.
Which is even with this insane margin, these batteries are still incredibly good value.
Ok, so lets try and calculate a rough idea of how much Tesla can make selling megapacks.
Now we need to determine how many batteries Tesla are producing and by when.
Well they are both arbitrary data points, but how about we use 500 GWh of batteries allocated,
and perhaps Tesla might be at this level at around 2026. But either way,
we will see how profitable energy can be when Tesla is deploying 500 GWh a year to megapacks.
Use your own discretion to decide when you think that might be, but my quick guess is around 2026.
Alright so 500 GWh, well that comes to 5000 100 MWh megapacks.
Sure, the orders will be of all sorts of battery sizes, and the prices vary per MWh
depending on what you order, but we have to use some figure, so lets say 100 is the average.
As we know Tesla sell those for $29 million. And if we are at $30/kWh at the pack level
then that is $3m for 100 MWh, and then perhaps it comes to $10m total for all the other
infrastructure, transportation and installation. Leaving $19m profit, which is 65% margin.
Ok, so this is easy, Tesla deploy 5000 of these, times $19 million, well that comes to $95 billion
gross profit. Well surely that business must be worth trillions then, particularly as its
target is to eventually grow to perhaps 2 to 3 TWh a year. Or $4-600 billion gross profit.
Ok we are playing with stupid, ridiculous unbelievable numbers here. How about we take the
base number as 500 GWh, then and create scenarios based on that. Like I said, its up to you to
determine when you think Tesla will be deploying this level of energy storage, but whether its
2025 or 2028, the point really is, that it will likely happen sometime, and when it does, well the
value of your shares will still have increased dramatically higher than an S & P index fund.
Ok, well the prices are set, so what if the margins wont be quite as high as I
thought, so let's see what the gross profit would be like at various profit margins. There is no
arguing the revenue, as we are using 500 GWh, and using Tesla's price, which comes to $145 billion.
At 20% margin, we are still at $30 billion gross profit. But that would obviously be a very low
margin, I would say very few people could argue with a mid 30% margin as a worse case scenario
though. Well that's around $50 billion gross profit. Now to have reached this level Tesla
would have had to have demonstrated tremendous growth. The better you can show growth, then
the higher the p/e rises, as more investors have faith that you can achieve more, unless demand is
starting to dwindle. However this is a commodity with unlimited demand for very long time.
Ok there is also going to be a significant amount of related OPEX too,
but lets say a ridiculous number like $10 billion a year, solely for the energy side,
not the cars. There is a lot of economies of scale from both as well, which I am excluding. Anyway,
perhaps we are then around $40 billion EBITDA, and maybe $35 billion net. So it wouldn't be out
of the question to expect that perhaps by 2030 1,500 GWh will be deployed, or 3 times growth.
So let's say a p/e ratio of 50 is reasonable. Well that would
give us a valuation of around $1.5 trillion. Of course I just took a margin that people find
easier to swallow. What if we used the margin that we calculated previously, welll it would be twice
that at $3 trillion. This is approximately 5 times Tesla's market valuation of today,
in just potentially 5 years time, and just the energy storage business. Well actually
not even the whole energy storage business, just the megapack business. There is power
wall on top of that. And then the is the rest of the energy business on top of that, oh year and
the auto business and... wait can someone remind me again why we are trading at around only $700.
And remember too, we are saying around 2026,
think how many more battery advancements would have been made by that stage. Yet its not like
energy prices are going to have come down, and energy demand is only going to increase,
particularly with the inception of electric vehicles, and the transition to renewable energy.
But wait there's more... we have the whole side of virtual power plants, and autobidder software in
addition to that. A system that some people say is comparable to energy as robotaxis are to vehicles.
Right Robotaxis, well a lot of people think that Tesla will stop selling cars to the public
and solely make cars for themselves for Robotaxis. Well if the returns are so good with energy,
and the savings on electricity costs are so substantial,
then might it be considered that Tesla might also stop selling Megapacks,
and in turn sell energy storage, and buy and sell back to the grid at substantial profit?
Tesla will have no problem reaching this level of cash flow to self-fund.
But why stop there? It's not spoken about overly, but why shouldn't Tesla start their own solar
farms. I mean they make the solar panels already, and then if they had some enormous battery farms
as well to compliment them, then wouldn't that be a better business model for Tesla? Rather
than selling the products to consumers. Tesla believe in vertical integration, so inevitably
why would they let other people profit from their products when they Tesla can do it themselves.
Similar to owning their own robotaxi fleet with cars they manufacturer,
they could own their own energy company with solar panels they manufacturer and store that
energy and sell it back to the grid too. And then autobidder will become an AI arbitrage machine.
It wouldnt take long for autobidder to predict the demand for energy, it could include lots of other
factors like weather, times of the year, days of the week, events, and prepare from them all,
to generate an even continuous output for energy supply. And excess energy they had,
well they could mine bitcoin if they chose. Ok, I dont know what sort of numbers we could do
here. but it wouldn't surprise me if Tesla could make $50 to 100 billion a year, from 500 GWh of
energy storage, and possibly a similar investment in solar to supplement. $50 to 100 billion a year,
that is crazy right? Can you image what that would do to the stock price if Tesla was able
to generate that much revenue in-house every year? And what is the cost of this revenue, well its 0.
You don't need to pay the sun for its energy, and the battery storage is a
one off cost too. So its practically all profit, save perhaps some maintenance.
Well actually, not all the math has been taken into consideration. What have I missed? Well this
is Tesla, and what is Tesla about? Exponentials. Do you realize where we are going? Well
this was the income that 500 GWh would generate every year. But we are saying that every year
Tesla is deploying 500 GWh more megapacks on this scenario. So actually every year the revenue would
be increasing by $50 to 100 billion. Ok, we are already into unbelievable
status here, so what if after 3 years of producing 500 GWh megapacks a year,
the gross profit from these megapacks would be in the region of $150-300 billion a year?
No, wrong again! This is tesla we have exponentials, plural, not just one. Remember
the amount of batteries Tesla produce each year will also increase exponentially.
So if this increase was at 50% a year, then after 3 years,
well first year they produce 500, second year 750, third year 1125 GWh of megapacks.
But that is how many they produce a year, not the total accumulation, over those 3 years Tesla would
have accumulated 2.4 TWh of storage. Or 4.75 500 MWh. And if we thought 500 MWh was potentially
worth $50 to 100 billion a year. Then we are now talking about $237 to 475 billion a year.
Oh and this is a totally recession proof product, and extremely inelastic.
In other words that is valuable to investors. In fact in a recession,
business might be even better due to people wanting to save more on energy. Anyway,
due to that it gets a higher p/e, oh and of course we know Tesla does plan on growing more than that.
So there is still growth that should be valued in too.
But throw it a p/e ratio of just even 30 at it and you have a market cap of $15 trillion,
or about $15,000. Of course we have the rest of the business left.
But ok, admittedly I have thrown a few numbers around, even if I am significantly incorrect,
it still looks like the kind of company you want to remain invested in.
Thanks for listening, please hit the thumbs up and subscribe,
you can follow me on Twitter and talk to me on Patreon.