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Tesla's energy storage, solar business grows

Tesla on Monday reported $801 million in revenue from its energy generation and storage business

Tesla's primary source of revenue comes from the sale of its electric vehicles, but its latest quarterly earnings report showed growth in its energy storage and solar business.

The demand picture will get even sunnier for the division if the company can access enough chips for its energy storage products, according to Tesla CEO Elon Musk.

Tesla on Monday reported $801 million in revenue from its energy generation and storage business -- which includes three main products: solar, its Powerwall storage device for homes and businesses, and its utility storage unit Megapack -- but that's just a sliver of the nearly $12 billion in total revenue. Revenue from this division rose 62% from the previous quarter and over 116% from the same quarter in 2020.

More importantly, the cost of revenue for its solar and energy storage business was $781 million, meaning that for the first time the total cost of producing and distributing these energy storage products was lower than the revenue it generated.

As a result, total deployments also rose. Tesla installed 1,274 megawatt-hours of energy storage in Q2 2021, a 205% rise from the same period last year. Similarly, the amount of solar energy deployed in the Q2 of this year was 85 MWh, up 214% from Q2 2020.

The important factor is revenue growth. Tesla reported $369 million in revenue from solar and storage in 2019. Revenue was stagnant in the second quarter of 2020, with $370 million from that business. This quarter was more than double what Tesla brought in during the same quarters of 2019 and 2020.

Besides the pandemic, Tesla points to several Megapack projects coming online and growing popularity in its combined solar and Powerwall product. According to a configurator on Tesla's website, one Megapack is nearly $1.2 million before taxes. In some states, Tesla says the earliest deliveries will be in 2023.

Tesla's energy storage business is facing headwinds, however. Musk said demand for both the Megapack and the Powerwall both exceed supply, and a backlog is growing. The company is unable to meet that demand because of the global chip shortage, he said.

Tesla uses the same chips in its Powerwall as it does in its vehicles, and Musk said vehicles are the priority while supply is low.

As that significant shortage is alleviated, then we can massively ramp up Powerwall production, Musk said during an earnings call. I think we have a chance of hitting an annualized rate of a million units of Powerwall next year — maybe, on the order of 20,000 a week. Again dependent on cell supply and semiconductors. As the world transitions to a sustainable energy production, solar and wind are intermittent, and by their nature really need battery packs in order to provide a steady flow of electricity. And when you look at all the utilities in the world, this is a vast amount of backup batteries that are needed.

Musk said in the long term, Tesla and other suppliers would need to produce a combined 1,000 to 2,000 gigawatt-hours per year in order to keep up with energy storage demands. He said the company has asked its cell suppliers to double their supply in 2022, a goal that Musk cautioned would be dependent on supply chain issues. The company's current strategy is to overshoot cell supply and route it outward to its energy storage products, but as in the case of chip shortages, vehicle production would be prioritized.