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Tesla’s energy business is booming — and could be the company’s next big profit driver
When it comes to evaluating and analyzing Tesla (TSLA), Wall Street analysts — at least the bullish ones — say the company is more than just an automaker. And one outsized growth area for Tesla beyond its car business could be energy.
In your Q2 Production and Delivery ReportTesla said it deployed 9.4 GWh (gigawatt-hours) of battery energy storage, its largest quarterly volume ever and more than double the amount of battery storage the company deployed in the first quarter.
Fuel for growth? A Tesla Megapack energy storage unit. (Tesla.com) (Tesla)
Tesla’s energy storage business, part of Tesla Energyincludes installations as small as Powerwall Batteries to the house to huge Megapack Storage Facilities intended for public service providers and municipalities to store large amounts of energy for use at times of peak energy consumption.
While a Powerwall typically stores about 12.2 kilowatt-hours of usable energy, or enough to power a small home for a day, a Megapack installation can store 3.9 megawatt-hours of energy, enough to power 3,600 homes for an hour, Tesla said.
Although Tesla only recorded $1.6 billion in revenue from its energy storage business in the first quarter, the company reported a healthy gross profit of $403 million from the business, representing a gross margin of 24.6%.
Tesla’s overall gross profit was $3.7 billion in Q1, with a gross margin of 17.4%, down from 19.3% a year ago. The drop in gross margin was due to Tesla’s EV price cuts, which were intended to stimulate demand and have been eating into profits over the past year.
Here’s why energy could be another catalyst for Tesla stock.
Tesla’s automotive business, which accounts for the majority of the company’s revenue and profits, is now weighing on Tesla’s overall gross margin, despite positive effects from rising profits and operational efficiencies from its energy storage business.
But with Tesla doubling its storage deployments in the second quarter compared to the first, the effect on the company’s bottom line could be substantial — and Wall Street is, of course, noticing the growth and profit appeal of Tesla’s energy storage business.
Morgan Stanley’s Adam Jonas dubbed Tesla’s second-quarter energy storage numbers a “scene-stealer,” noting that the 9.4 GWh deployed was double the company’s forecast.
“We believe investors will start to pay more attention to Tesla Energy, which we value at $36 per Tesla share ($130 billion), as the business uniquely positioned to benefit from investment in the U.S. electric grid accelerated by the AI boom,” Jonas wrote in a note to clients last week.
Morgan Stanley has a $310 price target on Tesla.
Jonas believes that spending on generative AI and the resulting buildings will spur a “multigenerational increase in energy demand,” electricity generation and data center investment, and Tesla’s energy storage business is poised to benefit.
The story continues
In fact, Jonas said clients have increasingly asked Morgan Stanley about the long-term business outlook for the investment bank’s Tesla Energy business, as well as its outlook for its Optimus robot unit, with an eye toward determining whether those two initiatives will be catalysts for Tesla beyond the second quarter.
Much of the “why you should buy Tesla stock” story has centered on the launch of a lower-priced EV — and the revelation of his highly anticipated robotaxi on August 8th.
But it could be Tesla’s second-quarter earnings report, due in less than two weeks, that could offer investors a nice upside surprise if the energy storage business reports another strong quarter of profitable growth.
Pras Subramanian is a Yahoo Finance reporter covering the auto industry. You can follow him on Twitter is at Instagram.
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