Tesla’s energy storage business is growing faster than any other part of the company

Tesla's energy storage division has emerged as a beacon of hope for the company, especially in light of a disappointing earnings report. Last year, the electric vehicle manufacturer saw a staggering 45% drop in profits compared to 2024, primarily due to a decline in EV sales. While investors were braced for this downturn, Tesla managed to surpass Wall Street's expectations for earnings and revenue, largely propelled by its energy storage solutions. In 2025, Tesla achieved a remarkable milestone by deploying 46.7 gigawatt-hours of energy storage products, marking a 48% increase from the previous year. Significant contributions came from its large stationary batteries, such as the Megapack and Powerwall, as well as solar installations, which now account for nearly 25% of Tesla's gross profit. In the last quarter alone, the Megapack alone contributed $1.1 billion out of the $3.8 billion gross profit generated by the storage sector for the entire year. The company's storage and energy generation revenues experienced a notable rise, climbing 26.5% to reach $12.8 billion. These offerings are proving to be highly lucrative, boasting a gross margin of 29.8%, significantly higher than the margins from Tesla's vehicle sales. Looking ahead, storage is poised to play a crucial role in the company's future growth trajectory. Large-scale energy storage projects, often contracted with utilities or data centers, are based on milestone achievements, and Tesla anticipates recognizing $4.96 billion in deferred revenue from ongoing projects this year—more than double the amount recognized from storage projects in 2025. However, challenges loom on the horizon. The One Big Beautiful Bill Act (OBBBA) has phased out tax incentives for residential energy storage systems like the Powerwall, though commercial tax credits for products like the Megapack will remain available until the mid-2030s. Additionally, tariffs and provisions within the OBBBA could lead to increased battery cell costs, as highlighted by the company. While sales have increased due to higher volume, the average selling price of a Megapack has decreased, indicating a more competitive landscape in the energy storage market. Despite these obstacles, Tesla maintains a positive outlook on its storage business. In their earnings report, the company stated, "Despite these challenges, as AI infrastructure drives rapid load growth, we see opportunities for our energy storage products to stabilize the grid, shift energy when it is needed most, and provide additional power capacity."