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Tesla Inc (NASDAQ:TSLA), led by the ultra-innovative Elon Musk , is listed as“An American electric vehicle and clean energy company”. When people think of Tesla, most immediately have their electric vehicles or an image of Musk pop in their mind. However it is this second aspect of Tesla, as a clean energy company, that has made recent news. Tesla's mission statement is to“accelerate the world's transition to sustainable energy”; Tesla has made a name for itself through its vehicles. Now it is time to use this brand they have built to further accelerate this transition to sustainable energy.
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Q2 2021 hedge fund letters, conferences and more
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Tesla Files To Become A Retail Electricity Provider In Texas
On August 16th, Tesla filed an application to become a retail electricity provider with the Public Utilities Commission of Texas. Utilizing both their battery storage products and electricity drawn from local energy grids, Tesla plans to sell electricity directly to consumers under their subsidiary Tesla Energy Ventures. Texas'“deregulated, idiosyncratic power market” allows for retail electric providers to“purchase wholesale electricity from power generators” and sell it to consumers (TechCrunch ). If approved, the battery storage plant will be built very close to their current manufacturing facility in Austin, allowing for economic benefits via vertical integration. This energy will not only serve consumers within Texas, but also provide Tesla with cheap energy to power both their manufacturing plant and vehicles.
This is part of Musk's long-term vision of a sustainable world. If this project is approved, Tesla will have the liberty to sell energy directly to consumers. These same consumers will have the opportunity, by use of Tesla's renewable energy products such as the 'Tesla Powerwall' or 'Solar panel,' to sell their excess energy back into the grid. Aside from the environmental benefits renewable energy brings in contrast to non-renewables, the necessity of energy storage is becoming more and more evident with climate change challenges intensifying.
Starting on February 10th and lasting almost two and a half weeks, Texas faced statewide power outages as a result of multiple severe weather storms. Their grid failed, leading to shortages in water, food and heat. Officials estimated that up to 702 deaths were attributable to the crisis. Texas was unprepared for an extreme weather event of this nature. Over a decade ago, this U.S. Federal Regulation report warned Texas that they were exposed to a power plant crisis similar to the one they faced. Additionally, due to their isolation from national power grids, they were unable to rely on electricity imports from other state grids.
A Backup Supply Of Energy
What Texas needed most during this time was a backup supply of energy . There were no reserves or opportunities to receive help from neighboring states. Tesla's storage capabilities, and unified grid, would allow for electricity to be built up over time in instances where extreme weather hindered grid functionality. The potential to transfer energy from homes within the grid working as a unified network would also enable members within the community to be self-sufficient in that they can rely on their neighbors if their reserves were depleted.
Applying to become a retail electricity provider is new to Tesla; building battery storage plants is not. They currently have plants in California and Australia, and are in the process of building another in Houston. In their Q2 earnings report , Tesla reported their energy generation and storage business recorded revenue of $810 million. This number is without any retail revenue as an electricity provider.
In terms of the Texas energy market, analysts do not currently see Tesla as a significant threat to current industry leaders like NRG Energy, Inc. and Vista Corp. that currently hold 60% of the market share. According to Morningstar Analyst Travis Miller,“We expect Tesla initially will target its own customers to complement its retail EV, battery, charging, and solar products. However, Tesla's brand name recognition gives it an advantage in a hypercompetitive market. Tesla's entry confirms our long-held view that consumer-oriented technology or telecom companies might try to enter retail energy markets.” Although Tesla, in the short-term, is not anticipated to pose as a major competitor to those currently operating within the industry, their long-term success is contingent on the potential of their brand and their early moves within the retail electricity market .
Tesla is expected to be approved by the Texas Public Utilities Commission by November 15th, as they meet all the necessary criteria. It will be interesting to see how their product is integrated into the current retail energy provider market. Will Tesla gain traction in this market, and if so, will their success in Texas begin a nationwide trend in states with deregulated power markets?
About the Author
Jackson Klein is a current Master of Management student in the Stephen M. Ross School of Business at the University of Michigan. Passionate about the crossover of environmental sustainability and finance, Jackson is focused on how value investing will require major attention to ESG principles in the future. Jackson has internship experience in both asset management and investment banking, and is hoping to begin a career in impact investing upon graduation in the spring.
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