WSJ: There’s No Market For Elon Musk’s Latest Product

The SolarCity-Tesla merger is unlikely to unlock the kind of market potential and profit gains in home batteries and solar panels Elon Musk is envisioning, according to reports Monday.

If Musk, who currently owns nearly 20 percent in each company, wants the merger to succeed, he will “have to virtually create a market from scratch, because so far, the demand for such batteries—especially among home consumers—remains extremely small,” reported the Wall Street Journal.

The market for Tesla’s heavy-duty batteries, called Powerpack, and its smaller home version, called a Powerall, is minimal and growing only in fits and starts, making the overall mission to canvass the world in Tesla batteries and solar panels a distant prospect.

Only 450 U.S. homeowners, for instance, purchased the batteries in 2015, according to GTM research, a group that reports on the the energy market. Likewise, only about 250 U.S. commercial property owners installed batteries, GTM estimated.

“It’s still a relatively tiny market, compared to solar or wind today, and minuscule if you look at the complete electricity infrastructure,” said Ravi Manghani, an analyst at GTM.

Home batteries are expensive, which can cost consumers between $1,300 and $2,000 per kilowatt-hour of storage, or $8,320 and $12,800 for a battery the size of Tesla’s massive Powerwall, according to GTM

The solar panel market stayed afloat mostly thanks to a 30 percent Investment Tax Credit (ITC), which allows residential customers and solar energy companies to get taxpayer cash for buying energy batteries for their solar arrays.

The ITC was scheduled to expire Dec. 31, but Congress extended it at the last moment to lengthen tax credit, allowing SolarCity and others to rake in billions of dollars worth of tax credits. The IRS later extended the ITC to include rechargeable batteries.

The market it also hampered by state solar metering rules, which allow solar customers to sell their energy back to the electrical grid.

Nevada’s Public Utilities Commission (PUC), instructed by Nevada Gov. Brian Sandoval, changed Nevada rules in the early part of 2016. The rule-change means SolarCity will see a substantial dip in pay from their energy panels.

The PUC, in short, acknowledges that solar-panel users would get paid for the energy their panels generate at lower, wholesale rates instead of at the higher, retail rates. The change means customers will pay nearly the whole retail cost of solar energy production.

Furthermore, service charges for solar panels in Nevada will increase 40 percent from $12.75 to $17.90 per month. The market for SolarCity and Tesla’s products are almost completely dependent on state rule changes.

Tesla projects that it will sell nearly $500 million in batteries this year, and between $2 billion and $5 billion of storage batteries in 2017, but sales are considerably lower than previous expectations.

Colin Langan, an analyst at UBS, for instance, expects Tesla to sell about $230 million in batteries this year and $1 billion in 2017, below the company forecast.

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