Tesla Energy: The Underappreciated Force Driving Tesla's Future Growth

Tesla Energy, often overlooked, is becoming a key contributor to Tesla's overall business value, with analysts estimating it adds about $41 per share to the company's valuation.

Ben Kallo from Baird Equity Research highlights that Tesla Energy is "one of the most under the radar aspects" of Tesla's business. He emphasizes that its rapid growth and higher gross margins compared to Tesla's Automotive division are drawing increased attention.

Tesla's Powerwall, a home battery storage solution, and Megapack, a large-scale battery for grid use, are central to this growth. The Megapack, in particular, is seen as a bright spot in the renewable energy sector, with large-scale developers favoring it despite challenges like high interest rates and upfront costs.

Tesla's Megapack factory in Lathrop, California, is on track to achieve an annual production capacity of 40 GWh by the end of 2024. Additionally, a new Megapack factory in Shanghai is expected to begin ramping up in 2025, further boosting production capabilities.

Baird's estimates for Tesla Energy through 2029 include 25% gross margins and 12% EBIT margins, with related expenses proportionate to its share of total company revenue. However, these projections might be conservative, as Tesla's expanding production capacity could lead to higher-than-expected volumes.

The growing success of Tesla Energy is increasingly seen as a critical factor in Tesla's future valuation, signaling that this once-overlooked segment could play a major role in the company's overall growth strategy.