Tesla’s exit from ESS market to benefit LG, Samsung
Electric vehicle (EV) giant Tesla has scrapped its plans to launch energy storage systems (ESS) in Korea due to delays in certification processes and worsening market conditions caused by the coronavirus pandemic, according to industry sources.
They said Tesla suspended its ongoing work to receive government certification for its ESS recently and offered its employees working in the ESS business long-term leave, which can be seen as a move withdrawing from the ESS market in Korea.
Tesla announced its entry into Korea’s ESS market in 2018. At the time, the announcement was widely seen as a real threat to local players such as LG Chem and Samsung SDI.
Industry officials said Tesla’s decision to exit the local ESS market would benefit these local makers, which have been struggling with safety issues since 2017 due to a series of fires, as the withdrawal would relieve excessive competition.
“Though the ESS market is still in its early stages, ESS makers are fiercely competing with each other for the first-mover advantage in the sector. When Tesla announced its possible entry in the Korean ESS market, many expressed concerns that the entry would deal a blow to the local ESS ecosystem. However, the withdrawal could mitigate such competition risks and help local players to focus more on selling their products overseas, in countries that have bigger markets than here,” an industry official said.
With more countries moving forward with initiatives to generate electricity using renewable energy resources such as solar, wind, geothermal and hydroelectric energy, the ESS business looks good on multiple fronts.
According to market researcher Lux Research, the global ESS market was estimated at $9.1 billion and is expected to grow to $111.8 billion in 2035.
Among categories of the ESS market, storage for residential purposes could have an annual growth rate of 76 percent over the next three years.
ESSs more profitable than EV batteries
While Tesla is better known as the world’s top EV manufacturer, it is focusing more on expanding its capacity to produce battery packs and ESS, such as Powerwall for residential use and Powerpack for industrial use.
Compared to EVs, ESSs are much more profitable as they hold more batteries than EVs. Tesla is aiming to go beyond the role of EV maker as it creates a business ecosystem based on batteries.
When the company announced its bid to enter the Korean market, industry officials said Tesla was seizing the opportunity to enhance the image of its battery products because there were no reports of its ESS products catching fire.
Tesla launched a separate ESS business unit here and planned to test operate its Powerpack products at local retail giant Shinsegae’s Starfield shopping malls.
The capacities of its ESS products are expected to range from 100 kilowatt-hours to 100 megawatt-hours.
To achieve the goal, the company’s Korean unit acquired a Korea Certification Mark (KC) from the Korean Agency for Technology and Standards (KATS) for its ESS in early 2020 but it has failed to win an industry standard authentication from the Korea Battery Industry Association (KBIA), which is another core certification to do ESS business here.
The company is known to have failed to win the KBIA certification as there is no proper procedural system for its products.
While Korean firms manufacture each component of ESS products separately and assemble them at the installation locations, Tesla’s ESS product is an all-in-one product that is comprised of battery and power conditioning systems that provide power conversion and energy management.
Though local ESS makers could avoid local competition with Tesla in the short term, it remains to be seen whether they can retain their leading positions in the global ESS market, analysts said.
Although Samsung and LG’s technology affiliates showed a combined market share of over 70 percent until 2018, their presence has tapered off since they have been embroiled in safety concerns after a series of fires involving their ESS products.
After the fire issue broke out, their combined market share dropped to around 60 percent due to the rise of Chinese rivals such as BYD and CATL.
Tesla’s Powerpack energy storage system