Sometimes it seems to me that investing is so darn simple. Find an important long-term trend that you think is a total no-brainer, tuck your money away and wait. While you wait, you'll have more time to enjoy life rather than obsess over stock charts like short-term investors. In my case, I use my extra free time to play outside in the sun with my kids.
Speaking of sunshine, it's a wonderful free source of energy. It will always be free, and the cost of capturing and converting this energy into electricity is dropping significantly every year. By contrast, the cost of coal, the most popular fuel burned in the United States to generate electricity, is not dropping. It does not take a genius to realize that solar electricity will eventually be much cheaper than traditional grid-supplied electricity in many places around the world. Burning much less coal would be a nice environmental upside.
The only problem with this is the sun doesn't shine at night. So we need a way to store electricity for later use. Batteries seem like the perfect solution. They're still fairly expensive today, but prices are coming down every year. With solar equipment and battery storage prices both dropping significantly, we may quickly be approaching a world where grid power is more expensive and less reliable that the alternative of solar and batteries.
Some people think this is crazy talk. But those are likely the same folks who thought mobile phones would never replace landlines. Not only has this happened, but they're less expensive and seen as more reliable since they still work perfectly in a power failure.
To me, it's an obvious no-brainer that solar electricity and battery storage will become very much mainstream and boast better economics than today's electrical infrastructure. Call me crazy, but I want to be invested in this trend for the next decade or two. My Strategy Lab portfolio holds shares in Tesla Motors Inc. and SolarCity Corp. I hold both stocks personally, too.
Hold on a second. Tesla Motors? What's their connection to solar power and battery storage? Well, it just so happens than on April 30, the company announced Tesla Energy, a new business unit with two major product lines. The Powerwall is a rechargeable battery unit for home use. The Powerpack is a much larger battery for utility and industrial applications. Both products are intended to reduce peak rate energy use or store power generated from solar cells.
Neither product is shipping today, but Tesla is taking pre-orders. After only one week, they said they actually had so many orders they may need to increase the planned size of their first gigantic battery factory under construction in Nevada. Bloomberg pegs the value of the pre-orders at around $800-million (U.S.).
Tesla did not invent batteries, and it did not invent electric cars. Nor did Tesla invent the idea of storing solar energy in large batteries. But the company has taken bold action to combine software, hardware and large-scale manufacturing to attempt to dramatically reduce the cost of batteries.
Tesla CEO Elon Musk, in answering an analyst's question on a recent conference call, said he'd be extremely disappointed if they could not bring battery costs down to $100 per kilowatt hour in less than 10 years. If this happens, alongside further cost reductions in solar-generation equipment, I believe it will become standard practice to install solar systems and battery storage in practically all new homes going forward. The economics seem to make that much sense.
There are plenty of bearish investors who, in my view, are way too focused on the current cost of batteries, or the current number of questions that have yet to be answered about the performance of Tesla's new products. Yet the real issue, long term, is whether or not costs will decline enough to drive enormous global demand. I think it's already happening, and I plan to stay invested in both Tesla Motors and SolarCity, the biggest U.S. residential solar installer.
I understand there are significant execution risks, just as there are with other large-growth stocks I've invested in such as Netflix Inc., Google Inc., Apple Inc. and Facebook Inc. Diversifying across many growth stocks helps me sleep better at night. And perhaps one day, when my children grow up and sleep in their own homes, their alarm clocks will be powered by a Tesla Powerwall.
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