Tesla Powerwall: Its developments and business model

First introduced in 2015, the Tesla Powerwall has dominated the global residential energy storage market ever since. The market is booming recently, with products of great variety, thanks to global trends, market maturity, and supporting policies. In this article, we will look into the Tesla Powerwall, examining its development and business model in terms of system performance and pricing strategy.
 

Regular energy storage battery vs. Tesla Powerwall

Home energy storage products all come in different capacities, power outputs, and ways of coupling. Unlike regular energy-storage batteries, which normally include battery packs and a battery management system (BMS), the Powerwall is an integrated battery system consisting of batteries, communication protocol, and a monitoring program, providing users with real-time feedbacks and information, such as usage data and power flows.
 

Development of Tesla’s energy storage systems

Tesla uses 18650 NCM battery cells for Powerwall 1, then 2170 NMC cells for Powerwall 2. The 2170 NMC cell has higher energy density and is capable of longer operating time. The use of which makes the system heavier but smaller in volume and has greater storage capacity. Tesla mulls switching to LFP batteries it co-developed with CATL, which are cheaper and have steadier performance.

In addition to the choice of cells, Tesla has raised storage capacity more than double from 6.4 kWh of Powerwall 1 to 13.5 kWh of Powerwall 2, whilst changing from DC-coupling to AC-coupling. All these adjustments underline Tesla’s renewed focus on the residential self-consumption energy storage market.

Solar panels produce direct current (DC) electricity. Powerwall 1 can work directly with solar panels and charge from the electricity generated. Whereas inverters must be paired for households to utilize the harvested power. Therefore, Powerwall 1 shall be installed along with solar systems to achieve higher conversion efficiency. 

Powerwall 2 has a built-in hybrid inverter, which converts alternating current (AC) to DC to charge the system and vice versa to provide for domestic appliances. Despite lower conversion efficiency, the AC-coupled energy storage solution allows households who have installed solar systems to add energy storage systems without dismantling existing inverters. Therefore, for households with solar systems, Powerwall 2 is a more convenient choice. 

From Powerwall 1 to Powerwall 2, Tesla re-positions the product from a small-capacity device serving for grid stability and peak-shaving operation, to an integration of larger-capacity hardware and multi-purpose software solution, shifting focus to self-consumption, time-of-use rate management, and backup power sources.

The latest Powerwall+, currently available in the U.S., is an upgraded version of Powerwall 2. Like Powerwall 2, Powerwall+ is an AC-coupled system with 13.5 kWh of energy capacity. The improvement is the inclusion of PV inverters, which makes Powerwall+ a genuine solar-plus-storage system that can work seamlessly with solar panels without connecting through other inverters. Therefore, compared with Powerwall 2, Powerwall+ is easier to install. Additionally, Tesla raised grid-connected power output from 5 kW of Powerwall 2 to 5.8 kW of Powerwall+, and the maximum grid-connected power output from 7 kW to 7.6 kW. Energy storage systems with higher grid-connected power output can be connected to solar systems with greater capacity. Tesla aims to achieve higher power output and simpler installation procedures.
 

Business model and pricing strategy

In April 2021, Elon Musk announced that Tesla’s energy storage products and solar system products will only be sold together as an integrated product. Customers may not install Powerwall without purchasing Tesla’s solar products. Later that year, Musk eased up on the rule, allowing people to get Powerwall from Tesla certified installers, while the product remains unpurchasable independently on Tesla’s official website.

Powerwall 1 was priced at US$ 3,000 when it was first launched in 2015. In 2022, prices rose to US$ 11,500 for Powerwall 2 due to surging demand and product upgrades. To install the Powerwall, buyers take the Virtual Home Assessment on Tesla’s official website, uploading their monthly utility bill for Tesla to estimate the preferable solar and energy storage capacities. 

For example, a 7.2-kW solar system paired with Powerwall 2 costs US$ 28,276. Ruling out US$ 11,500 of ESS installation costs, solar power costs US$ 2.3 per watt. Since Tesla provides a discount of US$ 2,700 for customers installing solar and energy storage systems at the same time, the final cost is approximately US$ 25,576. Factoring in the U.S. federal ITC, customers only pay US$ 17,903. The energy storage system alone costs US$ 6,160, US$ 456.2 per kWh on average.

In addition to Tesla’s official bargain prices and the U.S. federal ITC, people may acquire varying discounts by selecting certain utility companies. Moreover, Tesla offers to install as many as ten sets of the Powerwall system at a time, for many households choose to install at least two sets of energy storage systems to save installation costs, increase self-consumption ratio, and charge their EVs.

Table 1 is a comparison of Powerwall 1, Powerwall 2, and Powerwall+. In addition to the increase in energy capacity, installation procedures are simplified, whilst the main purpose of the product changes from maintaining grid stability to self-consumption, controlling time-of-use rate, monitoring solar power generation, and charging EVs. 

Most residential energy storage solution suppliers cooperate with distributors and installers to maximize profit through vertical separation. But Tesla, as a premium brand, keeps the business running even when integrating energy storage solutions with other products. In December 2022, Tesla Eclectic was registered with the State of Texas, allowing owners of the Powerwall to sell surplus solar power back to the grid at peak times. The act accentuates Tesla’s efforts to build a virtual power plant, consolidating the company’s vertical integration, and underscoring its confidence in its own products.