Tesla Energy could become company's biggest driver. Here's why.


Tesla (TSLA) is in focus as shares surge by over 21% on Thursday after reporting mixed third quarter results this week. While the company’s main revenue driver is its electric vehicle (EV) business, Tesla CEO Elon Musk has said he expects the company’s energy business to surpass its auto sector.

tWilliam Blair Group head of the energy and sustainability research sector Jed Dorsheimer joins Julie Hyman and Josh Lipton on Market Domination to examine clean energy developer Tesla Energy and its role in the space.t

“The energy problem is much bigger than I think most people understand,” Dorsheimer tells Yahoo Finance, explaining that Tesla Energy’s Megapack, a large-scale stationary battery, not only helps store energy but can also help stabilize the power grid to prevent outages. “The grid stability globally is actually getting more and more fragile. And so there’s going to be more deployments, particularly as we wind down thermal in terms of coal.”

“This is an opportunity for Megapack,” Dorsheimer says, adding, “We see an opportunity for this business to really scale and to add a level of profitability that most… clients don’t have in their models.

To watch more expert insights and analysis on the latest market action, check out more Market Domination here.

This post was written by Naomi Buchanan.

Video Transcript

Elon Musk has repeatedly said that Tesla Energy will eventually be bigger than the company’s automotive business.

And with each passing quarter, that prediction seems more and more likely to come true.

Eventually, the division reported a record gross margin 30 a half percent for the third quarter and its power wall deployments reached record levels for the second quarter in a row.

Joining us now to discuss is Jed Doer William Blair Group, head of energy and sustainable sustainability research sector.

J thanks for being here.

Thanks for having me.

I said eventually there because if you look at the revenue of the company and measured by that, you know, the energy business is still only about 10% I mean, this is still vastly an automotive company.

So how do you think about Tesla as an energy company, both now and particularly in the future?

Yeah, I don’t think it’s an either or type of situation.

And you know, if I go back to, you know, we were the bull on Tesla in 20 what I saw before most others in late 2018 is that there were they were about to go through a transition of going from low volume, high priced vehicles to uh low price, high volume.

And that was largely predicated on the model three.

And uh and building out Shanghai, we see a similar situation developing today with Tesla, just not in uh autos but in energy.

So the energy problem is much bigger than I think most people understand.

I think a lot of people think, hey, this is a battery that’s going to attach to my solar panels or this is the mega pack, which is what makes up most of it that’s going to help the utility.

And while those are all true, um what we found is within the grid, the grid stability globally is actually getting more and more fragile.

And so there’s going to be more deployments particularly as we wind down thermal in terms of coal.

Um You’re seeing the use of peaker plants.

Uh And so this is an opportunity for mega pack.

And as we look at the fact that Tesla sold out in Lathrop California and bringing up Shanghai, this is the comparison that I would use to the three.

And and why in terms of the volume, we see an opportunity for this business to really scale and to add a level of profitability that most analysts aren’t.

Uh I think or are not focused on or most clients I think I should say are uh uh don’t have in their models.

So, Chad just to put a fine point on this to make sure I’m understanding you correctly.

So in this energy transition world where we’re gonna look more to solar, more to things that don’t, aren’t active all the time.

Like a you can b you can burn coal any time, right?

The sun doesn’t shine all the time and you need that energy storage piece that say power companies, utility companies are going to be or municipal electric grids, for example, are going to be a bigger client of Tesla.

Yeah, and quite frankly, solar is the problem.

Solar and wind are the problem.

The variability that is created just as you said, the sun not shining and we’re trying to find remedies to that.

Um But that variability that that’s put onto the grid, we have to understand how the grid actually operates and how that split up.

And so if you get out of balance, you’re gonna start blowing up substations.

And so there’s a need for that um uh to bring resilience uh particularly as we put more variability into the system because the system is not designed for variability.

Since it, it optimized around dispatchable power, the benefit of fossil fuels is they’re dispatchable.

And so that difference between marginal and baseload, which uh which is a very important nuance that gap is going to be filled by mega packs in our opinion that that is going to be a way to solve this.

Um And that’s going to open up a AAA significant amount of demand that I think is well underestimated.

So Jed.

So bottom line for, for investors who are listening right now, the energy side of Tesla’s business could add how much to earnings Jed by your math.

Sure.

We think in by 28 2028 you can see an incremental 235 to 250 of earnings power um that is not uh being factored in right now.

And so, you know, that’s about uh you know, could be a third uh of the overall earnings for the business.

Um you know, maybe it’s smaller if, if some of these other businesses actually uh outperform more, but, you know, it’s a significant portion.

A and Jed who is there, who are the main competitors in this area specifically?

Is it say an end phase, is that who they’re up against?

No.

Um Actually, well, so yes, on the power wall.

Um and we, we cover m phase uh actually as well, but the um the main competitor, so most of the energy business that, that is driving Tesla uh um uh sales right now is the mega pack.

So that’s more of the utility scale.

And so there they’re going to be competing with um Cattle which is uh Catl, which is a Chinese company.

Um and, and then much smaller companies uh uh like affluence Energy.

Um And so, uh so this is uh you know, this is a pretty open market for Tesla really interesting and important part of the business for people to understand Jed.

Thanks for decoding it for us.

Appreciate it.

No problem.

Happy to.



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