Shares of Tesla Motors Inc. increased on Monday ahead of the announcement on Thursday regarding storage batteries which analysts believe will be a significant new line of business.
Tesla Motors Inc. (NASDAQ: TSLA) stocks rallied on Monday in anticipation of its announcement on Thursday regarding storage batteries. The company’s newest line of business according to Deutsche Bank analysts could be bigger than the market may initially anticipate.
Early on Monday, Tesla shares increased above 9 percent, making it the Nasdaq 100’s (NDX) top gainer. These shares are also 26 percent higher in April so far, which is 10 times more than the S&P 500 index (SPX) during the same time.
After the market closes on Thursday, Tesla is scheduled to unveil its new utility scale and home batteries product line, making it the company’s first official step towards the business of stationary storage.
The company earlier this year gave hints of its intentions to moving into this line of business, saying that battery-storage applications could make up one third of Tesla’s “gigafactory” output. Tesla is currently building a battery factory worth $5 billion outside Reno, Nevada. The company expects the factory to produce better and cheaper batteries intended for powering its mass-market electric car, expecting the Model 3 to start selling in the next 2 to 3 years.
Analysts from Deutsche Bank said that, although in its infancy, stationary storage has significant growth ahead. The company’s batteries would assist power utilities in managing grid fluctuation and power demand. The batteries would also be coupled with solar-power arrays for home usage.
However, Tesla’s venture into batteries did not get all of Wall Street excited. In a note to its clients, Bank of America Merrill Lynch analysts said that the excitement surrounding the battery business could be premature, adding that a potential residential storage market is even further beyond the company’s 2020 profitability target. In addition to this, the analysts also said that payback periods of home batteries could be far beyond what many consumers will likely consider. In addition to this, if leasing is offered, the company could possibly face a massive future liability the same as its vehicle residual cost guarantee.
Deutsche Bank analysts further said that not many companies, if any, in the same stationary storage industry seemed to earn their capital cost consistently and typically command significantly decreased valuation multiples to the ones Tesla are enjoying.
Commercial applications are more likely to succeed; however, the company would be entering a market where competition is rampant and will only increase as further opportunities develop. The analysts added that some of the competitors have greater scale advantages over Tesla.
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