Tesla’s battery-storage sales are growing way faster than EV sales

Unprecedented demand and a new factory coming online drove Tesla’s energy-storage business, specifically its utility-scale segment, to record highs in the first quarter of this year, according to an earnings call last week. Tesla posted $1.53 billion in combined solar and storage revenue, and it is widely presumed that utility-scale storage accounted for a large portion of that total, though the company didn’t break it out.

The storage segment of the pioneering automaker shipped 3.9 gigawatt-hours of battery packs in Q1, including its utility-scale Megapacks and home-storage Powerwalls. That’s a startling 360 percent jump compared to a year prior.

Tesla CEO Elon Musk said on the call that the company’s stationary-storage growth will eventually outpace its vehicle growth. That trend became clear in Q1 when vehicle shipments rose just 36 percent year-over-year — a far cry from the near quadrupling in storage shipments.

For now, Tesla remains an electric-vehicle company with an energy-storage hobby. But as the surging deployment shows, that hobby is starting to look more serious. In large part, that’s courtesy of a new 40-gigawatt-hour Megapack factory ramping up production in Lathrop, California — ​“the first of many,” Tesla said in its April investor letter. Another Megapack factory is planned for Shanghai, with construction to start later this year.

If sustained, this hefty pace of energy-storage deployment would make Tesla one of the larger players in the industry. Still, storage accounts for a fraction of the EV firm’s total revenue, which hit $23.3 billion in Q1. The combined storage and solar business accounted for just 6.6 percent of Tesla’s revenue in Q1. 

“Tesla’s dramatic year-over-year stationary storage growth is remarkable, but not surprising,” said Dan Finn-Foley, an energy storage expert at PA Consulting. He said there’s been ​“a dramatic uptick” in utility-scale battery storage development, ​“which has only been supercharged with the passage of the Inflation Reduction Act.”

Stationary storage is now ​“a market worthy of dedicated and specially designed products produced at the gigawatt-hour scale,” he said.

The storage gold rush is evident in the 680 gigawatts of storage capacity in U.S. interconnection queues at the end of 2022. Only a fraction of the projects in the queues will get built, but nevertheless, an astounding 60 gigawatts of grid-scale storage are expected to actually be constructed between 2023 and 2027, according to energy analyst firm Wood Mackenzie.

Tesla is now a reluctant lithium refiner

Given this rising storage demand — and, more importantly, surging EV production — the supply chain for battery-grade lithium has become shaky. The metal is a key commodity component in most EV and storage batteries, and Tesla’s products are no exception. Persistent insecurity around lithium supply has caused the company to vertically integrate certain links of the battery supply chain. 

Most recently, Tesla announced it would break ground on a lithium refinery near Corpus Christi, Texas in May because, as Musk put it on the earnings call, ​“the chokepoint is much more on refining capacity than it is on mining.” He continued, ​“We will have, by far, the most lithium refining capability…in North America, I think.”

But Musk stressed that this is not a business Tesla wants to be in. ​“Can other people please do this work?” he pleaded. ​“That would be great. We’re begging you. We don’t want to do it. Can someone please? Like instead of making a picture-sharing app?” 

Tesla is also expanding cathode production in Austin, Texas.

Since January, the cost of battery-grade lithium has fallen more than 30 percent after soaring to record highs last year. Prices are still elevated, but the downward trend could translate to less expensive battery packs going forward. 

“Prices on battery precursors like lithium carbonate peaked in Q4, and cost reductions for battery packs are likely in the coming quarters,” Wood Mackenzie wrote in a March storage report.

While Musk’s previous claims about fully self-driving cars, robotaxis, tunnel boring and integrated solar roofs have often been, let’s say, aspirational, these storage financials represent real factories and real hardware plugging into the grid at an accelerated clip.