Tesla's tech breakthrough only half the battle, says Lux Research

The new Tesla Powerwall energy storage system may have captured global headlines with its promise of low-cost cells mass-produced in the company’s Gigafactory, but to achieve further market penetration the technology requires additional industry support, say analysts from Lux Research.

According to the analysts, the Powerwall’s success rests on tackling three key areas: achieving cost reduction beyond lithium-ion (Li-Ion) cells, offering new financing and residential business models, and working with utilities rather than against them.

"Cheap cells made in the Gigafactory are only part of the puzzle," said Lux Research’s Dean Frankel. "Unlike electric vehicles, in stationary batteries there is more of a relative cost contribution coming from power electronics, software, and installation."

According to Frankel, without vertical integration from supporting industries, growth potential for the Tesla Powerwall will be limited. The company has entered an already crowded market where many players offer standalone, solar-connected battery systems. Tesla’s advantage, however, is its product scaling capability that is unmatched by few of its competitors thanks to its collaboration with Panasonic and organic relations with SolarCity, the largest residential solar installer in the U.S.

Further collaborations of this kind – such as those announced this week with Fronius and Sunrun – will nurture further penetration, as will sidling with suppliers that offer attractive financing options. Retailing initially at $3,500 for the 10kWh system and $3,000 for the 7kWh system, the Powerwall – while lower cost than many of its competitors – still presents a rather hefty upfront outlay for homeowners.

Providing financing options to customers will be key if the storage system is to be able to achieve Tesla’s stated goal of selling 30% of its output from the 50 GWh Gigafactory to stationary markets – something that would net the company some $3.7 billion by 2020.

"Tesla has succeeded in pushing down cell and pack costs for stationary energy storage, which will accelerate this market," said Frankel. "However, power electronics, installation, and widespread availability of financing remain open questions. The quicker Tesla can build partnerships, make acquisitions, and invest further to address these issues, the better its chance of hitting its hugely ambitious goal of selling 15 GWh of stationary energy storage in 2020."

Tesla will launch its Li-ion Powerwall at an industry-leading price point of $350/kWh. However, Lux Research predicts that the initial $3,000 outlay will be almost doubled once installation, inverter and other balance of systems (BoS) costs are factored in.

Further, the company must seek to work with (perhaps initially wary) utilities to ensure its solar and storage solution can be a key grid management tool – a process that can take time and consume huge resources in the initial rollout.