The Tesla Effect


Freakonomics in its inimitable style explored the hidden side of why Norway, a cold climate country with a population of 5 million people, is the second biggest market for Tesla all-electric cars? The answer shows how government policies can be tipping points in the economics of whole industries and why, for example, Tesla Powerwall is leading to the prospect of massive write-downs in the value of traditional electricity companies. And it’s investment advisers who are leading the charge not environmental conservation groups. Last year Morgan Stanley reported the falling costs of solar energy and battery storage modules had the potential to encourage huge numbers of homeowners and businesses in the US to go off the grid.

The report indicated the solar energy market in the US is much bigger than previously thought and the Tesla ‘Gigafactory’ in Nevada could lower the cost of battery storage much faster than anyone had imagined. The report calls it a mega trend.

Another key insight of the Morgan Stanley report was that the higher fixed grid charges become in countries such as Australia, the more likely customers are to go solar, buy batteries and go of the grid.

It’s no accident that the launch of Tesla Powerwall battery storage system saw Morgan Stanley cut its earnings outlook for AGL and Origin Energy. They estimate the earnings of these energy companies could fall by as much as $40 million in 2017 and $100 million by 2020.

Morgan Stanley’s research suggests $10,000 AUD with an under 10-year payback period is the tipping point for the price of a home battery. At this price the willingness of consumers to buy battery storage rises from less than 10% of households to 30-35% of households. Morgan Stanley’s survey of 1600 households in Australia found 21% to be ‘definitely interested’ at this price point and 29% ‘maybe interested’.

Tesla’s selling price for Powerwall to installers is $3500 AUD for 10kWh and $3000 AUD for 7kWh. These prices do not include installation or an inverter. The Powerwall can be used to store power from the grid at lower price off-peak periods as well as backing up solar for night-time.

Norway is the biggest market for Tesla S cars outside the US because electric cars there do not attract sales tax, are allowed to use bus lanes and do not pay tolls. Government subsidies are part of the equation but by no means the whole explanation of the rising popularity of renewable energy.

The cost of so-called ‘gold plating’ of Australia’s electricity networks with the benefit of government subsidies has seen household electricity prices increase by as much as $1,000 AUD in the past five years. No wonder the Tesla effect is starting to kick in.