Rapidly Expanding, Less-Recognized Tesla Business Division on the Upswing
Let's Dive into Tesla's Booming Energy Storage segment!
All eyes are on Tesla's core automotive biz, with the segment's decline in '24 revenue sending shockwaves through the investor community. But it ain't all bad news for the electric-car titan. Believe it or not, there's one part of Tesla's empire that's growing at triple-digit rates—yep, you guessed it—the sales of Tesla's energy storage products.
So, what exactly are these energy storage products? Just some badass smart batteries that stabilize energy grids, prevent power outages, and serve as home backup power solutions. Tesla's main players in this game are Powerwall, a battery system for homes, and Megapack, a large-scale commercial energy storage solution for utilities. They may not be the flashiest of products, but trust us, their implications for Tesla's overall business are huge.
Triple-digit Success, Baby!
In '24, Tesla deployed a jaw-dropping 31.4 gigawatt hours (GWh) of energy storage capacity, marking an impressive 114% year-over-year increase. You won't believe this, but things got even crazier as the year went on. In Q4 alone, Tesla showed off by deploying 11 GWh of energy storage—a staggering 244% year-over-year jump! And here's the cherry on top: Tesla could've grown even faster if not for supply constraints, with energy storage demand outpacing production.
This mind-blowing performance in energy storage helped Tesla's energy generation and storage business segment revenue surge 67% year over year in '24. Now, you might wonder why the overall segment growth rate wasn't as high as the GWh of energy storage Tesla deployed. That's because the segment includes sales of solar products, which have been less than stellar. Nevertheless, it's worth noting that the segment still saw triple-digit growth in Q4 '24, with segment revenue rising 113% year over year despite solar products dragging sales down.
A Pivotal Part of Tesla's Future
Investors should never underestimate the importance of this segment to Tesla's future. Not only has it grown into a substantial contributor, but it's also showing some serious operating leverage as the business expands, making it a promising factor in Tesla's long-term profitability equation.
The segment's sales hit nearly $10.1 billion in '24, accounting for over 10% of total revenue for the period. More importantly, Tesla's energy generation and storage segment's contribution to the company's total gross profit is growing even faster than its contribution to revenue. This is thanks to the segment's sales growing faster than its costs; energy generation and storage costs of goods sold rose 52% while segment sales rose 67%. This remarkable increase in sales led to substantial business segment margin expansion. Admittedly, the contribution to gross profit from Tesla's energy storage products specifically is likely growing even faster than for the overall segment, with the company's energy generation products included in this segment, disguising the full extent of the energy storage business's operating leverage.
No surprise then, that Tesla is investing heavily in its energy storage products. Riding the wave of high demand for Powerwall and Megapack, Tesla recently constructed a new factory in Shanghai to ramp up battery production—the factory was up and running by the end of '24.
Tesla CEO Elon Musk is clearly bullish on the energy storage business. As he noted during the fourth-quarter earnings call, "Energy storage is a big deal and will become incredibly important in the future..." With this in mind, Musk believes demand will continue to top supply for the foreseeable future, despite Tesla churning out all the GWh of storage it can possibly make.
Investors should keep a close eye on this Tesla business segment as it expands. If it starts to look like it could lead to a significant inflection in Tesla's overall profitability, investors might want to give Tesla's energy storage business more consideration in their analysis of the stock.
- Despite concerns about Tesla's core automotive business, the energy storage segment has shown remarkable growth, with a 114% year-over-year increase in energy storage capacity deployed in 2024.
- Tesla's energy storage segment revenue surged 67% year over year in 2024, accounting for over 10% of the company's total revenue for the period.
- In response to high demand for Powerwall and Megapack, Tesla invested heavily in its energy storage products by constructing a new battery production factory in Shanghai, which was completed by the end of 2024.
- Tesla CEO Elon Musk anticipates energy storage will become increasingly important in the future and believes demand will continue to outpace supply, even as Tesla ramps up production.
