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Tesla stock soars amid talk that 'gigafactory' could transform power industry

UPDATED: 2/25/14 4:28 pm ET -- adds background, stock price

NEW YORK (Bloomberg) -- Tesla Motors Inc.'s plan to ramp up battery production by building what CEO Elon Musk calls a "gigafactory" may do even more to transform the power industry than it does to advance the electric car.

Utility customers throughout the U.S. are already starting to turn to battery storage as a way to reduce power bills and sever ties to their local power company. The trend threatens the more than 100-year old monopoly utility business model that books about $360 billion in annual power sales.

By lowering the cost of energy-storage with its lithium ion batteries, Tesla could accelerate the disruption of the electric utility business as it doubles its share of the global car market to about 1 percent, Adam Jonas, a Morgan Stanley analyst, wrote in a note today.

"If it can be a leader in commercializing battery packs, investors may never look at Tesla the same way again," said Jonas, who rates the shares the equivalent of a buy. "If Tesla can become the world's low-cost producer in energy storage, we see significant optionality for Tesla to disrupt adjacent industries."

NRG Energy Inc. CEO David Crane, who says the U.S. utility industry is doomed to obsolescence unless it changes, drives himself to work every day in his Tesla Model S.

Tesla exceeded $30 billion in market valuation today after Morgan Stanley more than doubled its projected price for the stock and automobile critics at Consumer Reports rated the "groundbreaking" car as "best overall" in its annual ranking. The shares advanced 14 percent to close at $247.95 today and earlier traded at a record high of $250.30.

Gigafactory plans

Musk told Bloomberg Television last week that the company plans to provide details on a proposed "gigafactory" to produce the batteries needed to make more affordable vehicles. With each Tesla capable of storing enough energy to power the average house for 3.5 days, a growing population of Tesla cars represents a significant increase in how much electricity can be held in a country's infrastructure.

Homeowners might use battery storage to further reduce their dependence on utilities and potentially sell electricity back to the grid.

While still considered too expensive for wide-scale adoption, a drastic reduction in the cost of home energy storage systems would be a "game changer," American Electric Power Co. Chairman and CEO Nick Akins said during an interview last year. Batteries allow customers with solar panels to store energy during the day and then tap the excess overnight when the sun goes down, lessening a homeowner's dependence on the grid.

Power partnerships

Last year, NRG Energy said it started selling power from electric cars to the nation's largest power grid in a partnership with the University of Delaware. SunPower Corp., the second-largest U.S. solar-panel maker, said in December that it was testing use of power-storage systems to couple with its rooftop solar units.

"If it can be a leader in commercializing battery packs, investors may never look at Tesla the same way again," said Jonas.

"The scale of Tesla's battery production, even for its own use as an auto manufacturer, thrusts the company into 'key player' status for grid storage," Jonas said in the note.

The battery plant would be built with partners, and "there's a likelihood Panasonic would be part of it," Musk told Bloomberg last week. Panasonic Corp. is both a Tesla investor and its main supplier of lithium ion cells. Panasonic's participation is "not 100 percent confirmed," he said.

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