Tesla (NASDAQ:TSLA) is widely known for its electric vehicles (EVs), but its energy storage business is quickly gaining attention as a key growth driver. Recently, William Blair analysts gave Tesla an “Outperform” rating, not for its EV market dominance, but for the overlooked potential of its energy storage division. With the rising global demand for renewable energy solutions, Tesla’s energy storage products like the Megapack and Powerwall could revolutionize the energy sector. This begs the question: is Tesla’s energy storage business the key to unlocking significant upside for the stock?
Tesla’s Energy Storage Division Gains Momentum
While Tesla’s electric vehicles dominate headlines, the company’s energy storage division is quietly positioning itself as a critical part of its future growth strategy. Tesla offers energy storage solutions through two primary products: the Megapack for commercial use and the Powerwall for residential customers. These products store energy from renewable sources like solar and wind, providing a way for customers to use clean energy even when the sun isn’t shining or the wind isn’t blowing.
Demand for energy storage is increasing as countries worldwide shift to renewable energy to reduce carbon emissions and stabilize power grids. Tesla is leveraging its advanced battery technology to become a leader in this rapidly growing market. However, many investors still undervalue the energy storage side of the business, focusing mainly on Tesla’s electric vehicles.
William Blair’s Take: Tesla as the Apple of Energy
On August 29, William Blair analyst Jed Dorsheimer initiated coverage of Tesla with an “Outperform” rating, highlighting that Tesla’s energy storage business is undervalued. Dorsheimer compared Tesla’s approach to energy storage to Apple’s ecosystem, suggesting that Tesla is building a comprehensive energy solution that goes beyond vehicles. According to the analyst, the company’s energy division could soon be the primary driver of growth, especially as the EV market matures.
Dorsheimer emphasized the growing importance of energy storage in stabilizing power grids, expanding data centers, and integrating renewable energy sources. These factors are fueling demand for products like Tesla’s Megapack, which provides large-scale energy storage solutions for utilities and businesses. Tesla’s energy strategy could soon eclipse its EV business in importance, particularly as the company scales its production capacity.
Energy Storage Is Tesla’s Fastest Growing Segment
Tesla’s CEO Elon Musk has long spoken about the potential for its energy business, and the numbers are starting to back him up. In the second quarter of 2024, Tesla deployed 9,400 MWh of energy storage—a record for the company. Revenue from Tesla’s energy generation and storage division doubled year-over-year to $3.01 billion, accounting for 11.8% of Tesla’s total revenue. Tesla is now rapidly expanding its manufacturing capabilities to meet growing demand, with new Megapack factories being built in California and China.
The Megapack is designed for utility-scale projects, providing a way for energy providers to store massive amounts of renewable energy and deploy it when needed. With the global energy storage market projected to reach $114.05 billion by 2032, Tesla’s energy division is poised for substantial growth.
Virtual Power Plants and the Future of Tesla Energy
Tesla’s energy ambitions go beyond storage. The company is also innovating in the sale and distribution of electricity through its “Virtual Power Plants” (VPPs). These systems connect Tesla Powerwall units in homes to create a distributed energy network. Homeowners who own a Powerwall can opt to join the network, allowing Tesla to pull energy from multiple homes at once to supply the grid during peak demand periods. This allows Tesla to act as a virtual utility, providing backup power and stabilizing the grid.
Tesla’s VPPs are expanding globally, with operations already established in the U.S., Europe, and Asia. As the company scales up production, revenue from Powerwall and VPP operations is expected to grow significantly.
Should You Invest in Tesla for Its Energy Storage Potential?
With Tesla’s stock down 11.7% year-to-date, some investors may wonder whether now is a good time to buy. The company’s energy storage business presents a compelling case for long-term growth. As more countries transition to renewable energy, the demand for reliable storage solutions will only increase. Tesla’s position as a leader in this space, combined with its ability to scale production, gives it a competitive edge.
However, Tesla’s high valuation remains a concern for some investors. While the stock is trading at 49 times its 2026 earnings estimates, William Blair believes the company’s technological advantages and the growth of its energy business justify this premium.
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