Inside Tesla’s Enormous Energy Opportunity

Alex Danco of VC firm Social Capital recently penned a piece outlining just how big the opportunity is for Tesla Motors Inc (NASDAQ:TSLA) to be a key cog in the impending energy revolution.

Danco first creates an analogy between today’s state of the energy world and the state of the PC world back in the late 80s. Essentially, we’re on the cusp of a huge revolution that will change everything about the way electric energy is generated, stored, transmitted, and used.

Then Danco introduces a concept he calls “dxdt”:

The following point is important to understand: from any user’s point of view, you can’t really separate the dx (place) and the dt (time) components of dxdt. So long as you are connected to the grid, it does not matter where or when you turn on your light switch: it will go on. This is why you sometimes hear people well versed in energy say “The grid is a battery.” It’s not literally a battery- but to any observer, it acts like one. For anyone putting energy into the grid, you don’t have to worry about who’s consuming it when or where; for anyone pulling energy out of the grid, you don’t have to worry about who produced it, when or where. The lights go on, and that’s that.

This “dxdt” is a modern convenience of having energy available to us in any room, in any building, at any time, and exists because the utility grid does a very good job at balancing power needs. But in exchange for this convenience, we’ve given up the ability to choose our energy provider. Most cities in the U.S. have only one electric utility operator, and if you want electric power in your building, you’re forced to use them.

In the near future, we’ll likely have more choices as to where our energy comes from. A “smart grid” would give consumers the option, perhaps, to pay a bit more to access green energy sources. And right in the middle of this distributed energy future is none other than Tesla:

We already heard about Tesla Secret Master Plan Part 1: Use momentum from the Roadster to build the Model S, and then in turn the Model 3. Then we heard about Master Plan Part 2, which was largely about Tesla becoming a fleet manager of sorts (albeit with a bridge period where individual owners still own the cars). What’s going on in parallel, though, is quite a bit bigger in scope: Use cars as momentum to build Gigafactory production capacity and charging stations, and in turn own the charging standard and therefore dxdt. In the future, GM, Toyota or Apple could make the cars; Musk and Straubel mostly care about having them all have a Tesla-produced battery made in a Tesla Gigafactory running Tesla software and — most importantly — operate on the Tesla Charging Standard. That’s a real business.

So Tesla’s biggest opportunity may not even be in cars at all — at least not the way we think of them. If Tesla can position itself as the battery and infrastructure provider of the electric car and/or electric home revolution, it could wind up being one of the most valuable companies in the world.

TSLA-2016-08-22

Tesla shares were mostly flat in Monday morning trading around $224.00. TSLA has fallen 6.6% since the start of 2016, compared with a 7% gain in the benchmark S&P 500 index during the same period.

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