While Tesla (TSLA) shares fell after the company’s earnings report amid concerns about profitability and new product launches, one part of the company’s business, Tesla Energy, is growing rapidly.
Tesla’s energy storage business is part of Tesla Energy and includes a range of equipment, from small installations like Powerwall batteries for home use to large Megapack storage facilities that allow utilities and municipalities to store large amounts of energy for peak energy usage.
In its second-quarter financial report, Tesla announced that it had deployed 9.4 GWh (gigawatt hours) of battery energy storage, a quarterly record and more than double the amount of battery storage the company deployed in the first quarter. This deployment helped the division post record revenue ($3.014 billion) and gross profit ($740 million).
Growth in the energy business demonstrated strong operating leverage, with gross margins expanding to 24.6% in the second quarter from 18.4% in the same period last year. Meanwhile, Tesla’s automotive gross margins fell to 18.5% in the second quarter from 19.2% in the same period last year.
In fact, the energy business’s gross profit of $740 million accounted for 16.3% of Tesla’s total gross profit, nearly triple the 6.1% from a year ago.
Tesla Energy is now accounting for an increasingly large portion of the company’s total profits, and analysts and investors are taking notice, comparing the business to another fast-growing division within the tech giant: Amazon Web Services.
“Yes, I will. [compare it to AWS]”The success of Tesla Energy and a tour of Tesla’s Lassop factory prompted them to increase their holdings of Tesla shares,” Nancy Tengler, CEO and chief investment officer at Laffer Tengler Investments, said in an interview with Yahoo Finance.
“growth [of Tesla Energy] Profitability has been impressive, and they’re a loss cost producer in that space, so we expect growth to really boost earnings. [the] “I expect Tesla shares to grow over the next few years,” she said. The Laffer Tengler fund holds about 11,270 shares of Tesla.
Earlier this month, Morgan Stanley’s Adam Jonas called Tesla’s second-quarter energy storage deployment a “highlight,” noting that the 9.4GWh deployed was double the company’s forecast.
Following the second-quarter results, Cantor Fitzgerald also raised its price target on Tesla to $245, citing its energy storage business.
“24th year [Tesla] “The revenue estimate has been increased to $101.2 billion (previously $100.6 billion) due to an increase in estimated energy storage and deployment. We now expect estimated energy storage and deployment of 29 GWh (previously 16.3 GWh) in FY24 and energy storage and deployment revenue to reach $9.6 billion (previously $6.6 billion),” Cantor said in the note.
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Plus Power’s 1 GWH Megapack Sierra Estrella site. (Tesla) (Tesla)
Following the earnings report, Stifel reiterated its buy recommendation and maintained its target price at $265, noting that Tesla Energy’s revenue and profit margins were “well above expectations” and growth appears “solid.”
Baird analysts also noted that “strength” in the energy business and increased regulatory credits for Tesla from EV sales should help offset headwinds from near-term weakness in auto margins. Baird has an outperform rating and a $265 price target on the stock.
Not all analysts believe Tesla Energy will be the savior for Tesla, which is currently mired in declining overall gross margins. UBS analysts believe the success of Tesla’s energy business is already priced into the stock, noting that the current share price level is primarily a bet on autonomy.
Jefferies noted Tesla Energy’s “increasing importance” to gross margins, but the analysts don’t think it’s enough of a factor to upgrade the “current consensus,” which has resulted in a $165 price target and a hold rating for Jefferies.
Still, Tesla Energy is a growth area in Tesla’s venture network, which includes cars, charging, AI and services. And if it can maintain profitable growth, it could become the most valuable company in a few years, just like Amazon’s AWS, which posted 17% year-over-year revenue growth in its most recent quarter.
Pras Subramanian is a Yahoo Finance reporter covering the auto industry. X And on Instagram too.
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