There's been a lot of attention recently on Tesla's (TSLA +0.91%) core automotive business. The segment's declining revenue in 2024 has spooked investors and has ultimately been a key reason for the stock's big downturn this year. But not all of the electric-car maker's business segments are seeing underwhelming sales. In fact, there's one part of Tesla's business where the company is growing at triple-digit rates. Yes, you heard that right: triple digits. We're talking about the soaring sales of Tesla's energy storage products.
What exactly are Tesla's energy storage products? Powerful smart batteries that can help stabilize energy grids, prevent electric utility outages, act as back-up power for homes, and more. Tesla's two main energy storage products are Powerwall, a battery for homes, and Megapack, a large-scale commercial solution for utilities. The products may sound boring but their implications to Tesla's business are mighty.
NASDAQ: TSLA
Key Data Points
Triple-digit growth
In 2024, Tesla deployed 31.4 gigawatt hours (GWh) of energy storage capacity, up 114% year over year. Even more, growth in this business accelerated drastically by the end of the year. In Q4 specifically, Tesla deployed 11 GWh of energy storage, up 244% year over year. And here's the icing on the cake: Growth would have been even faster during the year, but Tesla said in its fourth-quarter shareholder update that its energy storage product deliveries were supply constrained. In other words, it couldn't make enough products to serve demand.
Such strong performance in energy storage helped Tesla's energy generation and storage business segment revenue grow 67% year over year during 2024. Note that the slower growth rate for the overall segment revenue compared to Tesla's growth in GWh of energy storage deployed is because the segment includes sales of solar products, which haven't done well. Nevertheless, it's worth noting that the segment as a whole still saw triple-digit growth in the fourth quarter of 2024, when segment revenue rose 113% year over year despite solar products dragging on sales.
Important to Tesla's future
Investors shouldn't underestimate the importance of this segment to Tesla's future. Not only has it grown to a meaningful size, but it's also flexing some operating leverage as the business scales, making it a promising component to Tesla's long-term profitability algorithm.
The segment's sales were nearly $10.1 billion in 2024, accounting for more than 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. Helping bolster the segment's record gross profit, the segment's sales are growing faster than its costs; energy generation and storage costs of goods sold rose 52% while the segment's sales rose 67%. This outsize growth in sales led to significant business segment margin expansion. Of course, the contribution to gross profit from Tesla's energy storage products, specifically, is likely growing even faster than it is for the overall segment. With the company's energy generation products lumped into this segment, the full extent of the energy storage business's operating leverage is masked.
No wonder Tesla is doubling down on its energy storage business. Capitalizing on the high demand seen in Powerwall and Megapack, Tesla recently constructed a new factory to expand battery production in Shanghai. Completed in December of 2024, the company said it will begin ramping production at this factory during the first quarter of 2025.
This increased investment in its energy storage products reflects Tesla CEO Elon Musk's bullishness on the business.
"Energy storage is a big deal and will become [...] incredibly important in the future," Musk explained during Tesla's fourth-quarter earnings call. "And it is something that enables far greater energy output to the grid than is currently possible because the [...] majority of the grid has no energy storage capability."
With this backdrop in mind, Musk believes demand will continue to exceed supply for the foreseeable future, despite Tesla producing as much GWh of storage as it "can possibly make."
Investors should keep a close eye on this Tesla business segment as it scales. If it starts to look like it could lead to a significant inflection in Tesla's overall profitability, investors might want to start giving Tesla's energy storage business more weight in their analysis of the stock.
