Tesla’s latest earnings report, released yesterday, outlined the “difficult operating environment” for electric vehicles, underscored by a 7% year-over-year decrease in automotive revenue. Looking ahead, the EV giant predicted that this year’s vehicle volume growth rate may be “notably lower” than in 2023.
But buried in the numbers was some good news for the company: Tesla saw record deployments of its Megapack and Powerwall storage offerings, totalling 9.4 GWh in the second quarter. That jump — 158% year over year — doubled the company’s revenue for that part of the business.
According to Latitude Intelligence director Matt Casey, Tesla’s energy storage boost is essentially the result of the company “finding itself in the right place at the right time, given the market developments on the net metering and VPP fronts.”
The company’s year of battery growth, Casey noted, coincides with the first year of California’s controversial net billing tariff, which introduced a new compensation structure for solar panel owners looking to sell power back to the grid.
That structure, which offers more credit for power sold during peak hours, resulted in a 45% boost in battery attachments in California in its initial 12 months. At the same time, however, the first few months of the so-called Net Metering 3.0, or NEM 3.0, also saw mass layoffs in the rooftop solar industry and an 80% decrease in installations.
Tesla’s legacy solar and storage businesses (both physical equipment and go-to-market channels) put the company “in an ideal position to benefit from the rising tide effect that the storage space will see as a result of NEM 3.0 and a steady stream of new battery-based VPP pilots and programs being announced,” Casey added.
California isn’t alone in shifting toward a model state regulators hope will boost storage rates. In December, Idaho approved its own net billing structure, and a string of states including Arkansas, Connecticut, Illinois, New Hampshire, South Carolina, and Washington are considering similar reforms — though replicating California’s boom may be more complicated in those other markets.
Tesla CEO and founder Elon Musk, however, is bullish on the potential of storage.
“I think people don’t understand just how much demand there will be for storage,” Musk said on Tesla’s earnings call, pointing to the ongoing problem of renewables curtailment. “[They] are underestimating this demand by product order of magnitude.”
Complicated market dynamics
Tesla’s storage numbers are echoed elsewhere in the market.
Sunrun, which offers energy-as-a-subscription services, said in its first quarter report in May that storage attachment rates had risen from 15% to 50% in the previous 12 months, from 71.1 megawatt-hours in the first quarter of 2023 (before NEM 3.0 took effect) to 207.2 MWh in this year’s first quarter. Sunrun is expected to report its second quarter earnings on August 6.
Battery deployments remain key for global decarbonization goals. By some estimates, storage capacity needs to increase fifty-fold by 2050.
But the storage market still faces an uphill battle on deployments overall. According to Clean Energy Associates, growth of U.S. energy storage capacity is currently slower than expected, despite the projected boost from advanced manufacturing production tax credits. On top of that, firming costs are up across the board, and U.S. battery manufacturers are facing labor shortages that are only expected to intensify as demand grows.
Tesla, for its part, highlighted the reliance of its storage business on incremental volume growth. Essentially,last quarter’s meteoric rise in sales isn’t reflective of every quarter to come. For the company’s utility-scale offering, dubbed the Megapack, deployments “can vary meaningfully quarter to quarter” based on project timing, the company said in its latest SEC filing.
In recent months, Tesla has made a number of deals to deliver Tesla storage systems to high-profile customers. In May, the company agreed to sell two Megapack battery systems to PepsiCo as part of a broader charging infrastructure agreement, for instance.
And just this week, Tesla signed a contract to provide 15.3 gigawatt-hours of Megapacks to renewable energy developer Intersect Power.
“As these product lines grow, we will have to maintain adequate battery cell supply for our energy storage products,” the filing said, pointing to the ongoing construction of a new battery factory in Shanghai. “At the same time, changes in government and economic incentives or tariffs may also impact our sales, cost structure and the competitive landscape.”
