Will Tesla’s Newest Battery Pan Out? – Wall Street Journal

The brand name won't be enough.

As Tesla Motors Inc. TSLA -0.01 % makes a bid to dominate the budding market for electricity storage, it faces lots of competitors and rival technologies, energy experts say. And plenty of challenges—including driving down the price of its "power walls" to a level that will prompt price-sensitive consumers to spring for them.

Tesla announced Thursday that it is repackaging the lithium ion batteries it now uses in its electric cars to sell them as electricity-storage devices for homes, businesses and utilities. The battery packs are meant to absorb electricity when it is cheap and plentiful—during a sunny afternoon for a house with rooftop solar panels, for example—and release the power when electricity is expensive or scarce.

So far the market for electricity storage remains small, though growing quickly; last year about $ 128 million worth of such batteries were installed around the country, mostly at utilities, according to GTM Research, which tracks the renewable energy industry. Just 1% of the capacity was installed at homes.

Tesla plans to change all that. At an event to formally announce the battery products, Elon Musk, the company's chief executive, said it is "trying to change the fundamental energy infrastructure of the world." The company's shares, which had risen by about 6% in the days before the party, ended Friday almost unchanged at $ 225.96, down nine cents.

A few companies, including Sungevity and Sunrun Inc., plan to offer battery systems for consumers who have solar panels, at prices they say will be competitive with Tesla's. For bigger users, companies including Sunverge Energy Inc., Stem Inc. and Greencharge Networks offer lithium-ion batteries made by companies like LG Chem 051910 -1.09 % and Samsung, 005930 1.81 % with various financing options. Another group of companies sells what are known as flow batteries, which are more common for very large users like utilities.

"So many companies are fighting over a market that's practically nonexistent right now," said Haresh Kamath, energy storage expert at the Electric Power Research Center in Palo Alto, Calif. "Tesla is betting they can produce a charismatic product that consumers will want to buy—like what Apple did with the iPhone."

Tesla will have to sell eight home battery systems to equal the size of each battery pack going into one of its luxury cars, he said.

Environmentally conscious consumers—think: Nissan 7201 -0.68 % Leaf drivers—are likely to opt for these types of home batteries, said Venkat Srinivasan, head of the battery program at Lawrence Berkeley National Lab. But battery prices need to drop by about 75% before they go mainstream, he said. "The big catch will be decreasing the costs."

Tesla says it has an answer for that, too: the giant battery factory it is building in Reno, Nev., with Panasonic Corp. 6752 -1.62 % , which makes the batteries it uses in its cars. Tesla says the new plant can cut 30% off the cost of producing batteries.

For consumers, Tesla is offering a 7 kilowatt-hour system for $ 3,000 and a 10 kilowatt-hour battery pack for $ 3,500. Since the average house creates an electrical load of 2 to 5 kilowatts, the packs could power an entire house for a couple of hours. Or they could run essential household circuits—a refrigerator, microwave, lights and fans—throughout the evening when solar panels don't produce, provided there was enough sun during the day to charge up the batteries.

The devices, which feature a 10-year warranty, would be bolted to a wall near an electrical panel. Special controllers would toggle between batteries and solar panels, deciding when to put power on the grid or pump it into batteries. These same smart controls would also decide when to release power from the batteries.

Batteries are only a small piece of the total cost of a solar/storage system. An integrated system includes solar panels, batteries and inverter, smart controls, building permits, labor and other costs that can add up to $ 20,000 or more.

Tesla's prices for installing batteries and other equipment are on the low end of the energy storage market's current range of $ 800 to $ 2,000 a kilowatt-hour, said GTM Research analyst Ravi Manghani. Those installation prices need to drop by half or more, to less than $ 500 a kilowatt-hour to attract a lot of demand, he predicted.

But there are other, less cost-conscious customers for energy storage. Businesses, which pay extra charges based on their peak demand for power, are already starting to use the equipment to cut their energy use and utility bills.

Utilities themselves are also interested in bigger battery systems to help them even out the fluctuating flows of electricity from solar farms or wind turbines, keeping the grid stable or eliminating the need for expensive grid upgrades.

Utilities think energy storage will become an essential part of the electric system in coming years because so much renewable energy is being added to the grid, said Mark Rawson, head of technology for the Sacramento Municipal Utility District in California.

Lithium ion technology, which Tesla uses, looks good today because it can absorb and release electricity relatively quickly and can go through many charge and discharge cycles without failing, he said. "But I wouldn't say it's a silver bullet. There's still lots of innovation happening."

Write to Rebecca Smith at rebecca.smith@wsj.com and Cassandra Sweet at cassandra.sweet@wsj.com