Most people think of Tesla Inc (NASDAQ:TSLA) as a maker of high end electric cars. Indeed, just this summer Tesla made a big splash with its Model 3, releasing the company’s first “affordable” electric car. Of course, with a price tag of $35,000 that is still in the luxury category.
While this certainly is good news for TSLA stock holders, it really is not the reason investors should like the stock and the company. After all, it only commanded a 0.4% share of all vehicles sold in this county last year. Compare that to the 17% market share of General Motors Company (NYSE:GM).
The secret sauce for Tesla Inc is its battery technology, and the potential to apply it in everything from transportation to shoring up the entire power grid in the U.S.
Tesla Inc Looks to the Future with Lithium
Tesla’s batteries are based on lithium, a soft, silver-white alkali metal. Under normal conditions, it is the lightest metal and the lightest solid element. And as with all alkali metals, lithium is highly reactive and flammable. Its from that reactive nature that lithium gets its power.
Lithium batteries, or more correctly lithium-ion batteries, consume more than three quarters of world lithium production. Most people are already familiar with them in the form of small disc batteries that power watches, small electronic devices, hearing aids and unfortunately even the batteries that caused the Galaxy Note 7 smart phone recall.
This technology powers golf carts and now full size, road worthy electric cars like those that are lifting TSLA stock in 2017.
But even that is not everything that will drive Tesla Inc. in the future. Lithium batteries can transform how electric power is delivered to both commercial and residential end users.
The Power Grid and TSLA Stock
Here in the U.S. experts know that the power grid has several important problems, not the least of which is maintaining a steady flow of power during peak usage. Peak usage can overwhelm centralized power generation and distribution. Further, it is hard to scale that up to meet growing demand. A full-sized coal fired or nuclear power plant comes with an exorbitant price tag and regulatory morass.
Lithium batteries can help by giving utilities the ability to distribute storage and serve up power from these reserves as needed. And, they are fully scaleable.
Look at solar power. It is no secret that renewable energy will become a large part of the power mix and some states, such as California, already make it a priority. In fact, California is expected to generate 33% of its electricity from renewables within the next five years.
The problem with solar power is that it is not always available. When the sun is not shining, there is no power and we rely on lithium batteries to figuratively make hay while the sun shines. Power generates during sunny days and is stored in batters. Then, when night falls or it is simply cloudy these batteries can keep power flowing.
Western utilities already make use of such technology and it helps solve the problem of “brown outs,” when there just is not enough power available for everyone. For example, when solar power generation is at its peak during the middle of the day, demand is often low or moderate. However, in the evening demand spikes up when people return home from work and school just when supply decreases as the sun starts to set. Something needs to make up the difference and it has to be either conventional fossil fuel sources or, increasingly, renewable energy stored in batteries.
Tesla Inc. is already a major supplier of batteries to the California power grid and built several “gigafactories” to produce them. That makes TSLA stock much more than a play on automobiles.
TSLA Stock is a Buy Here
Tesla stock recently traded at an all-time high to complete its recovery from a mini-bear market this past summer. Shares peaked in June and tumbled in early July following disappointing safety test results from the Insurance Institute for Highway Safety, as well as from downbeat deliveries data.
A drop of 20% is often used as the threshold for a bear market but time is an important consideration. Bear markets take time to grind the market down, yet Tesla accomplished that slide in only eight trading days.
In the context of where the stock traded over the past year, it was only a 38.2% correction in a bull market. Chart watchers will recognize that percentage as a Fibonacci level and a healthy, albeit scary, pullback.
In other words, there’s no reason to think that Tesla will quit anytime soon. And its long-term potential with lithium batteries and power distribution make TSLA stock very much an investment to watch.
