Tesla's Energy Storage Business Is Quietly Growing at Triple-Digit Rates. Is This the Company's Next Growth Engine?

After years of being viewed as an intriguing side project, Tesla's (NASDAQ: TSLA) energy business is starting to look like the electric-car company's most underappreciated growth engine. In 2024, energy storage deployments surged, and gross profit from the segment hit new highs. And momentum hasn't slowed. Based on Tesla's first-quarter 2025 results, the division is on pace for another record-breaking year.

For investors still focused solely on Tesla vehicles like its best-selling Model Y and flashy Cybertruck, it may be time to widen the lens.

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An energy boom few are talking about

Tesla's energy business delivered stunning results in 2024. Total energy generation and storage revenue jumped 67% year over year to more than $10 billion. After deploying 14.7 gigawatt hours (GWh) of storage in 2023, Tesla more than doubled this figure to 31.4 GWh in 2024. Growth like this doesn't just spotlight demand -- it highlights exceptional product-market fit and suggests there's likely a long runway ahead.

More importantly, Tesla's energy business, including both solar and energy storage sales, is becoming far more profitable. Energy segment gross profit reached $2.6 billion last year -- far more than the $1.1 billion it posted in 2023. For further context, Tesla's energy business generated less than $300 million in gross profit in 2022. The division has gone from a long-term moonshot bet to a viable earnings contributor in just a few years.

Much of Tesla's momentum in its energy storage business comes from its Megapack product -- a grid-scale battery storage solution designed for utilities and large-scale commercial customers. The company is producing Megapacks at its dedicated Lathrop, California, facility, and recently started production at a second Megapack factory in Shanghai, with a target production of up to 40 GWh of capacity per year.

Of course, Tesla also has a product for residential customers called Powerwall. Though Powerwall deployments are smaller than Megapack, the product's importance shouldn't be underestimated. "We achieved a fourth sequential record for Powerwall deployments," Tesla said in its first-quarter update in April, "crossing 1 GWh for the first time, and continue to be supply constrained."

Huge demand

Speaking of Tesla's first-quarter momentum in energy storage, total energy storage deployment during the period skyrocketed 154% year over year to 10.4 GWh. Revenue from energy generation and storage grew 67% year over year to $2.7 billion.

In its first-quarter update, Tesla attributed some of its massive growth to rising demand for artificial intelligence (AI).

AI infrastructure is driving rapid load growth, which, along with traditional utility customer applications, is creating an outsized opportunity for our Energy storage products to stabilize the grid, shift energy when it is needed most and provide additional power capacity.

Of course, investors still need to keep their expectations in check. Though Tesla is the most aggressive and scaled player in the space, there's a risk that a business like this becomes commoditized over time as other players ramp up their efforts in the space. Additionally, management said in its first-quarter update that the current tariff environment has a "relatively larger impact" on its energy business than it does on its automotive business.

Still, Tesla's staggering momentum in the segment is hard to ignore. Investors have long been willing to give Tesla a premium valuation based on its disruptive potential. But in recent years, that bet has rested almost entirely on the company's vehicle business. Now, a second act is emerging. Tesla's energy division is growing rapidly, becoming more profitable, and gaining strategic importance. It's taking some pressure off Tesla's automotive business.

If Tesla's energy business continues to scale at its current pace, it won't just be a "nice-to-have" division. It will be one of the company's most important growth levers.

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Daniel Sparks and/or his clients have positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.