Battery storage is now Tesla’s most profitable product, but the solar business is tanking

Tesla CEO Elon Musk says the company’s battery storage division – including household Powerwall and utility scale Megapack products – has recorded its highest quarterly deployment and has become the group’s highest margin business.

In the 3rd quarter of 2023, Tesla says it deployed 4.0 gigawatt hours of battery storage, a 90 per cent rise from the same quarter last year, and up 10 per cent on the second quarter, and delivered revenues of $US1.5 billion as production at its new mega factory in California ramps up.

“As this business grows, the energy division is becoming our highest margin business,” Musk said in the company’s earnings call, noting that  energy and services contributed over half a billion dollars to the quarterly profit.

The margin growth in battery storage contrasts sharply with the contraction of margins in Tesla’s main automative business, where price cuts have had a major impact, despite cost reductions in manufacturing.

Musk says the company’s overall profit growth will come from add-ons such as autonomy and other subscription services, but he has said in the past that energy storage could match the automotive business in scale.

The battery storage business is growing rapidly, and its sales for the first three quarters of the calendar year now total $US4.6 billion, with deployment more than doubling over 2022,.

That sales number includes solar deployments, but that business has contracted sharply, with Tesla blaming rising inflation and the end of net metering in California for a big fall in solar deployment to just 49MW in the latest quarter.