Tesla (TSLA) Value-Added Battery Business Could Be Bigger than Transportation, Northland Capital Markets Says

Northland Capital Markets analyst Colin Rusch reiterated an Outperform rating and $298 price target on Tesla Motors (NASDAQ: TSLA) after he re-evaluated his thesis on TSLA amid the recent drop in oil prices. Rusch view Tesla's prospects as more diverse and robust than they had previously considered. This view in part because they see Tesla as a value-added battery company. Also, Tesla vehicle sales are driven by performance, user experience, and environmental concerns - not gas prices.

On the value-added battery business, Rusch commented, "In considering the potential for energy storage to be a disruptive technology in the 600GW diesel generation market, reach 5%-10% (or 250GW-500GW) penetration of the global 5TW grid, and be instrumental in electrifying areas for the 1.3B people globally who do not have electricity, we believe TSLA’s opportunity is substantial in this arena and certainly could consume more than the 15GWh annually it has targeted by 2020, especially when considering that most batteries for this application are sized energy to power ratios of 2:1 or 4:1."

He added, "In looking at the margin potential for energy storage based on cost-out trajectory and current value proposition, we believe stationary energy storage may prove to be as profitable if not more so than the transportation business. We note that stationary storage solutions are selling for $0.65-$2.00/Wh presently with adoption curves showing dramatic market opportunity growth at prices <$1.00/Wh. With its gigafactory fully ramped, we believe pack costs can reach $0.30/Wh or less. Comparing the potential profit pool for vehicles vs. stationary storage, we see a somewhat similar GM/Wh metric which approximately reaches $0.25-$0.30/Wh. If we take
TSLA’s target for 50GWh of sales by 2020, such margins would imply $12.5B-$15B of gross profit, well ahead of our current estimate for $8.9B. Further, by diversifying the company’s end markets, we believe its ability to reach such gaudy numbers is somewhat de-risked as the company will have multiple options for monetizing its energy storage production."

Commenting on Tesla in the context of lower oil prices, the analyst said, " As we assess the fuel efficiency of TSLA at ~3miles/kWh in the context of lower oil prices we are reminded that Tesla vehicle sales are driven by performance, user experience, and environmental concerns. Based on our estimates, annual savings versus a comparable vehicle at $60/bbl oil comes to $1,100/year while at $100/bbl oil annual savings come to $2,160."

For an analyst ratings summary and ratings history on Tesla Motors click here. For more ratings news on Tesla Motors click here.

Shares of Tesla Motors closed at $229.30 yesterday.

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