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 storage and generation business. This includes three main products: solar and its Powerwall storage device. However, that's only a small portion 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 the same quarter of 2020. Tesla does not separate its 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 solar and storage deployments were flat in Q2 2019, compared to Q2 2020, which is likely due the general halting business.
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 Teslas site 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 once this shortage is addressed, we can ramp up Powerwall production. We have a chance to reach an annualized rate in excess of one million Powerwall units next year, or maybe 20,000 per week. Again, dependent on cell supply as well as semiconductors. The world is moving towards sustainable energy production. Solar and wind are both intermittent and require battery packs to ensure a steady supply of electricity. This is why there are so many backup batteries needed, especially 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 said Musk would not be able to agree on this goal as it is dependent on supply chain problems. Musk stated that the company's current strategy is over-producing cell supply and routing it outwards to its energy storage products. However, as in the case with chip shortages vehicle production would be prioritized.
Plans for battery cells
While much of the battery cell discussion focused on its 4680 cell that is in development, Musk also touched on Teslas intentions to power some of its products with cheaper lithium-iron-phosphate (LFP) batteries. Specifically, he said theres 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 of Tesla's plans and said that he believes there will be a shift. This is actually a good thing, because there's a lot of iron around the world. There is much less nickel, and far 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.