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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”. Most of the time, when you think of Tesla, you think of electric cars or a picture of Musk Pop. However, it’s this second aspect of Tesla as a clean energy company that has made headlines lately. Tesla’s mission is to “Accelerate the world’s transition to sustainable energy”; Tesla has made a name for itself with its vehicles. Now is the time to capitalize on this brand they have built to further accelerate this transition to sustainable energy.
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Tesla aims to become a retail electricity company in Texas
On August 16, Tesla filed an application with the Public Utilities Commission of Texas to become a retail electricity company. Tesla plans to use both its battery storage products and electricity from local energy grids to sell electricity directly to consumers through its subsidiary Tesla Energy Ventures. Texas’s “deregulated, idiosyncratic electricity market” enables electricity retailers to “buy wholesale electricity from generators” and sell it to consumers (TechCrunch). If approved, the battery storage plant will be built in the immediate vicinity of the current production facility in Austin, which enables economic advantages through vertical integration. This energy will not only serve consumers in Texas, it will also provide Tesla with cheap energy to power both its manufacturing facilities and vehicles.
This is part of Musk’s long-term vision for a sustainable world. If this project is approved, Tesla will have the freedom to sell energy directly to consumers. The same consumers will have the opportunity to feed their excess energy back into the grid by using Tesla’s renewable energy products such as the “Tesla Powerwall” or the “Solar Panel”. Aside from the environmental benefits that renewable energies have over non-renewable energies, the need for energy storage is becoming more and more apparent as the challenges of climate change increase.
Beginning February 10 and lasting nearly two and a half weeks, Texas faced nationwide power outages due to multiple storms. Their network failed, resulting in a lack of water, food and warmth. Officials estimated that up to 702 deaths were attributable to the crisis. Texas was unprepared for such an extreme weather event. Over a decade ago, this U.S. federal regulatory report warned Texas of a similar power plant crisis as the one they were facing. In addition, due to their isolation from national power grids, they could not rely on electricity imports from other state grids.
A backup power supply
What Texas needed most at this time was a backup power supply. There were no reserves or opportunities to get help from neighboring states. Tesla’s storage capacities and the unified network would allow electricity to build up over time when extreme weather conditions hampered network functionality. The ability to transfer energy from households within the grid as a unified network would also enable members within the community to be self-sufficient as they can rely on their neighbors when their reserves are exhausted.
Applying as a retail electricity provider is new to Tesla. Building battery storage systems is not. They currently have plants in California and Australia and are building another in Houston. In its earnings report for the second quarter, Tesla reported that its power generation and storage business had sales of $ 810 million. That number is excluding retail sales as an electricity supplier.
In terms of the Texan energy market, analysts do not currently see Tesla as a significant threat to current industry leaders like NRG Energy, Inc. and Vista Corp., which currently hold 60% of the market share. According to Morningstar analyst Travis Miller, “We anticipate Tesla will be targeting its own customers first to complement its retail electrical, battery, charging and solar products. However, Tesla’s brand awareness gives Tesla an edge in a hypercompetitive marketplace. Tesla’s entry confirms our long-held view that consumer technology or telecommunications companies may be trying to get into energy retailing. ”While Tesla is not expected to be a major competitor in the short term, its long-term success depends on its potential Brand and their early steps in the power retail market.
Tesla is expected to be approved by the Texas Public Utilities Commission by Nov. 15 as they meet all of the required criteria. It will be interesting to see how their product integrates into the current utility retail market. Will Tesla gain traction in this market, and if so, will its success in Texas spark a statewide trend in states with deregulated power markets?
About the author
Jackson Klein is currently a Master of Management student at the University of Michigan’s Stephen M. Ross School of Business. Jackson is passionate about the intersection of environmental sustainability and finance, and focuses on how value investing needs to pay close attention to ESG principles in the future. Jackson has internship experience in both wealth management and investment banking and hopes to embark on a career in impact investing after graduation this spring.