When it comes to valuing and analyzing Tesla (TSLA) stock, Wall Street analysts (at least the bullish ones) have said the company is much more than just a carmaker, and one area outside of the auto business where Tesla could grow significantly could be energy.
In its second-quarter production and deliveries report, Tesla announced that it had installed 9.4 gigawatt-hours (GWh) of battery energy storage, its highest quarterly total to date and more than double the amount of battery storage the company installed in the first quarter.
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.
A Powerwall can typically store 12.2 kilowatt-hours of usable energy, enough to power a small home for a day, but a Megapack can store 3.9 megawatt-hours of energy, enough to power 3,600 homes for an hour, Tesla said.
Tesla only posted revenue of $1.6 billion from its energy storage business in the first quarter, but the business generated strong gross profit of $403 million, for a gross margin of 24.6%.
Tesla's first-quarter gross profit was $3.7 billion, and its gross margin was 17.4%, down from 19.3% in the same period last year. The decline in gross margin was due to Tesla lowering prices of its EVs to stimulate demand, which has weighed on profits over the past year.
Here's why energy could be another driver for Tesla stock.
Tesla's auto business, which accounts for the majority of its revenue and profits, is currently weighing on Tesla's overall gross margins, despite increased profits from its energy storage business and positive effects from operational efficiencies.
But the impact on Tesla's bottom line could be substantial, as the company doubled its storage deployments in the second quarter compared to the first, and Wall Street is understandably focused on the growth and profitability appeal of Tesla's energy storage business.
Morgan Stanley's Adam Jonas called Tesla's second-quarter energy storage deployment numbers “highlighted,” noting that the 9.4GWh deployed was double the company's forecast.
“We believe investors will begin to pay closer attention to Tesla Energy, which we value at $36 per Tesla share ($130 billion) as the company is uniquely positioned to benefit from investments in the U.S. power grid that will accelerate with the AI boom,” Jonas wrote in a client note last week.
Morgan Stanley has a price target of $310 for Tesla.
Jonas believes spending on generative AI and the associated expansion will drive “multi-generational growth in energy demand,” power generation, and data center investments that will benefit Tesla's energy storage business.
Indeed, Jonas said clients are increasingly asking investment bank Morgan Stanley about the long-term business outlook for Tesla Energy and forecasts for its Optimus Robotics division, with a focus on whether those two initiatives will continue to fuel Tesla beyond the second quarter.
Much of the “why buy” Tesla stock talk has centered around the launch of its low-cost electric vehicles and its highly-anticipated robotaxi, due to be unveiled on August 8th.
But Tesla's second-quarter earnings report, due in two weeks, could come as a pleasant surprise to investors if its energy storage business reports another strong quarter of revenue growth.
Pras Subramanian is a Yahoo Finance reporter covering the auto industry. twitter and Instagram.
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