MENU

How Origin Energy Ltd’s share price could profit from its Tesla deal

Overnight in the United States, Tesla Inc shares slumped 5% on the NASDAQ as the clean energy and automobiles behemoth reported first quarter earnings.

Investors were seemingly disappointed by the fact that America’s largest automaker (by market capitalisation) posted a wider-than-expected loss of $1.33 per share, despite doubling revenue from a year ago.

Whilst the company reiterated that production of its flagship mass-market car – the Tesla Model 3 – remains on track, the biggest positive from Tesla’s results came from its ancillary energy generation and storage division.

In my opinion, this bodes well for Origin Energy Ltd (ASX: ORG). Here’s why.

Energy and storage division

Tesla’s energy and storage division encompasses its recent acquisition of SolarCity – a sustainable energy company specialising in renewable energy generation from the sun – alongside its innovative PowerWall home battery.

According to CEO, Elon Musk, this division enables Tesla’s customers to achieve an integrated and sustainable energy solution for all households. It deploys SolarCity technology to provide a means of electricity generation at home, with the PowerWall enabling storage of energy for future use. All told, it offers customers the value proposition of living completely ‘off the grid’ and leaving an eco-friendly footprint on the world.

Pleasingly, this messaging seems to be gaining traction with consumers. Tesla’s first quarter earnings show quarter-on-quarter revenues swelled a whopping 63% to $214 million. Margins in the division increased 29.1% as an uptick in customers offset overhead costs.  Accordingly, this augurs well as a sign of strong demand for its product.

So what?

Although an increase in demand for the PowerWall and SolarCity products directly benefits Tesla’s bottom line, in my view, Origin Energy stands to benefit here in Australia from its close association with Tesla.

Late in 2015, Origin Energy snared a deal with the American tech giant to sell the Tesla PowerWall directly to its customers in order to satisfy the growing desires of Origin’s eco-conscious customers.

Whilst peers AGL Energy Limited (ASX: AGL) and EnergyAustralia made similar moves by securing licences to distribute storage batteries of Tesla’s competitors, I believe Tesla’s brand stands out most in the market.

First move advantage

Like Cochlear Limited (ASX: COH) has done to the hearing implants market, most consumers inadvertently associate storage batteries with Tesla’s PowerWall. This means that all else being equal, most would-be buyers would ordinarily prefer to acquire Tesla’s technology above others.

Though this doesn’t mean that AGL and EnergyAustralia should lose all hope, it’s likely that potential buyers of storage solutions would be more inclined to choose Origin’s energy offering over the likes of AGL and EnergyAustralia for this reason alone. This bodes well for Origin’s chances of acquiring new retail customers.

Foolish takeaway

As I explained here, Australia’s electricity market is a complex beast, which means a single Tesla product isn’t going to give one retailer dominance over another.

Nevertheless, with Origin currently being the only energy retailer in Australia with distribution rights to sell Tesla’s PowerWall, I wouldn’t be surprised to see Origin win in the race to secure more energy customers and potentially post higher profits in this division. Watch this space.

HOT OFF THE PRESSES: Motley Fool's #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this 'under the radar' consumer favourite is both a hot growth stock AND our expert's #1 dividend pick for 2017. Now we're pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is click the link below!

Simply click here to receive your copy of our brand-new FREE report, "The Motley Fool's Top Dividend Stock for 2017."

Motley Fool contributor Rachit Dudhwala owns shares of Origin Energy Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

HOT OFF THE PRESSES: My #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.