Tesla Motors Inc (TSLA) stock has lost 30% of its value this year, significantly down from the all-time high set in July 2015.
While Tesla’s new car delivery guidance (PDF) was strong for 2016, investors are finally coming to the realization that Tesla stock is just too expensive. That’s why Elon Musk is looking for other businesses to penetrate.
Thanks to SolarCity Corp (SCTY), and high demand for commercial and consumer-scale solar power, Musk may have just found that business.
The Problem for Tesla Stock
Even after its losses, Tesla stock is still completely out of touch with competing auto stocks. In the past, TSLA bulls could argue that comparing it to Ford (F) was unfair because Tesla is more of a technology company rather than traditional, high-volume manufacturer.
Those notions have been debunked with Tesla’s deceleration of growth, and also with the rise of competing, and successful, electric vehicles.
Specifically, Ford aims to have 40% of its lineup electric by 2020, thereby becoming a real threat to Tesla’s existing business model. As a result, Tesla stock owners are no longer as optimistic as they once were.
The Backup Plan
Most know that Tesla is building a 5.5 million square foot gigafactory to manufacture solar-powered batteries and various forms of electricity. The estimated cost? $5 billion.
While this factory will assist Tesla in boosting production, it also creates a new opportunity for TSLA to sell batteries to consumers, businesses and also utility companies. Back in the second quarter of 2015 Tesla unveiled the Powerwall and Powerpack.
The Powerwall, which stores energy and then powers your home, will be sold to consumers for a few thousand dollars. The much larger (and more powerful) Powerpack will be used for businesses and utility companies.
Just one week after the unveil in 2015, Bloomberg reported that Tesla had already received $800 million worth of orders. The Powerwall had nearly $180 million of orders and the Powerpack had already topped $625 million in orders.
SCTY & TSLA Make History
While it is unknown whether SCTY was one of the first customers to place an order, the company recently announced that Tesla’s Powerpack is playing a major role with its project in Hawaii.
SolarCity’s power project in Hawaii for the Kaua’i Island Utility Cooperative is a chance for SCTY to show what it can do to the rest of the world. With the use of Tesla’s Powerpack, SCTY plans to implement the first-ever utility scale system in the U.S. that can delivery solar power throughout the night.
This means a greater reduction of non-renewable energy sources around-the-cloud, which in turn means higher usage for Tesla’s Powerpack and SolarCity’s technology. Not only will KIUC pay SCTY 20% more per kilowatt hour of power generated, but SolarCity’s existing solar arrays could only deliver power during the day. This new technology will deliver power at night, thereby increasing the power output at a higher rate.
For Tesla, this means more per-hour billings for the Powerpack, and thus higher revenues.
Bigger Implications Ahead
In retrospect, SolarCity’s deal with KIUC may be massive by its own standards, but it is fairly small in terms of consumption. KIUC has just 33,000 customers on the Hawaiian island of Kaua’i.
However, KIUC is part of a family of 930 electric co-ops operating in 47 states while serving more than 36 million customers. As a result, a successful project from SolarCity will potentially lead to far larger deals in the future.
Given that Tesla CEO Elon Musk is the Chairman at SolarCity Corp, one has to believe that a natural partnership to gain competitive advantages is a reality between these two companies.
For Tesla, that means a larger revenue channel in supplying rechargeable energy products and a stock that is no longer tied to just vehicles. In other words, SolarCity could give Tesla stock a huge long-term boost in the right direction.
As of this writing, Brian Nichols did not own any of the aforementioned securities.