Tesla’s main source of revenue is from sales of electric vehicles. However, its most recent quarterly earnings report revealed growth in its energy storage business and solar business.
According to Tesla CEO Elon Musk, the demand picture for the division will become even more sunny if it can access enough chips to power its energy storage products.
Tesla reported Monday $801 million in revenue from its Energy Generation and Storage business. This includes three main products: solar and its Powerwall storage device. But that’s only a fraction of its nearly $12 billion total revenue. Despite being small, this division is still selling more solar and energy storage. This division saw a 62% increase in revenue compared to the prior quarter, and a more than 116% increase in revenue for the same quarter 2020. Tesla doesn’t seperate solar and energy storage revenue.
Importantly, the cost to generate revenue from its solar and energy storage businesses was $781 million. This means that the total cost of production and distribution of these energy storage products was for the first-time lower than the revenue generated. This is good news.
As you might expect, total deployments rose as well. Tesla added 1,274 megawatt hours of energy storage to its second quarter in 2021, which was a 205% increase over the previous year. The amount of solar energy used in the second quarter was 85 MWh. This is a 214% increase over Q2 2020. Side note: Tesla’s total energy storage and solar deployments were flat in Q2 2019, compared to Q2 2020. This is likely due the general halting business caused by the pandemic.
Revenue growth is the key nugget. Tesla generated $369 million from storage and solar in 2019, a total of $369 million. In Q2 2020, revenue was flat with $370 million coming from this business. This quarter saw Tesla bring in more than twice the revenue it did during the same quarters in 2019 and 2020.
What has changed? Tesla cites several Megapack projects that are now online and its growing popularity for its combined solar-powerwall product. Tesla no longer allows customers without solar installations to order Powerwall. A configurator on Tesla’s website estimates that a Megapack costs about $1.2 million, before taxes. Tesla claims that the first deliveries will take place in 2023 in some states.
However, Tesla’s energy storage business faces headwinds. Musk stated that both the Megapack as well as the Powerwall are in high demand and that there is a growing backlog. He stated that the company cannot meet this demand due to a global chip shortage.
Tesla uses the same chips for its Powerwall and its cars, and Musk stated that vehicles are priority when supply is scarce.
Musk stated during an earnings call that “as that significant shortage is relieved, then we can massively increase Powerwall production.” Musk said during an earnings call that there is a possibility of reaching an annualized rate next year of one million Powerwall units. This could be on the order of 20,000 per week. Again, dependent on cell supply as well as semiconductors. As the world moves towards sustainable energy production, solar power and wind will be intermittent and therefore require battery packs to ensure a steady supply of electricity. This is why there are so many backup batteries needed when you consider all of the utilities around the globe.
Musk stated that Tesla and its suppliers would have to produce between 1,000 and 2,000 gigawatt-hours each year to meet energy storage demand. Musk stated that the company had asked its cell suppliers for a double-digit increase in their supply by 2022. Musk did not agree with this goal as it would depend on supply chain issues. Musk stated that the company’s current strategy is overshooting cell supply and routing it outwards to its energy storage products. However, vehicle production would be prioritized as in the case with chip shortages.
Plans for battery cells
While much of the battery cell discussion focused on its 4680 cell that is in development, Musk also touched on Tesla’s intentions to power some of its products with cheaper lithium-iron-phosphate (LFP) batteries. Specifically, he said there’s a good chance that all stationary storage could move to iron-based batteries and away from nickel-manganese-cobalt (NMC) and nickel-cobalt-aluminum batteries.
Musk spoke out about Tesla’s plans, saying that he believes there will be a shift. He said, “I think probably will witness a shift. My guess is probably to two thirds iron, one third nickel.” This is actually a good thing, because there’s a lot of iron in the world. There’s a lot less nickel, and a lot less cobalt.
For its long-range electric vehicles, the remaining third of nickel-based batteries will be used. All other EVs will also be converted to LFP batteries. This is already the case for its vehicles made in China.