This underrated Tesla business deserves more attention -- and it's not AI

  this-underrated-tesla-business-deserves-more-attention-and-it-s-not-ai.html
  Business and Finance on Thu, Oct 23rd, 2025 by MarketWatch

The Energy Unit in Context

The piece begins by laying out Tesla’s business portfolio. While the automotive segment dominates headlines, the Energy unit—comprising the Powerwall, Powerpack, and Megapack—has historically represented a much smaller slice of revenue. According to the article, the unit delivered roughly $1.4 billion in revenue last year, a modest 5% of Tesla’s total $27 billion sales. That figure is deceptive, however, because the Energy segment’s compound annual growth rate (CAGR) over the past five years has been well above 25%, a pace that eclipses the EV segment’s 14% CAGR. The writer cites Tesla’s own earnings releases, which show that the Energy unit’s gross margin consistently sits in the 35–40% range—significantly higher than the automotive segment’s 15–20% margin.

Battery Storage: Powerwall, Powerpack, Megapack

A large portion of the article is devoted to unpacking the three tiers of Tesla’s storage products. The Powerwall, a residential battery that pairs with Tesla’s solar roof, is described as the “gateway product” that introduces households to Tesla’s ecosystem. Sales of the Powerwall surged from 35,000 units in 2021 to 80,000 units in 2023, a growth that the article attributes to falling battery costs, more aggressive pricing, and the expanding demand for backup power during grid disruptions.

The Powerpack and Megapack are the commercial and utility‑scale counterparts. The Megapack, in particular, is highlighted as a transformational product that can store enough energy to power a small city for a day. The writer points out that Tesla has already secured several large‑scale contracts—most notably a $3 billion Megapack deal with California’s Pacific Gas & Electric—to help the utility integrate intermittent solar and wind generation into the grid. These contracts, according to the article, are expected to grow into multi‑year, multi‑megawatt contracts that could generate recurring revenue streams for Tesla.

Solar Roof and Energy Services

The article also delves into Tesla’s Solar Roof and its Energy Services platform. It notes that the Solar Roof—Tesla’s glass‑on‑glass solar panel system—has achieved a 30% higher energy conversion efficiency than most traditional panels. Although sales volume has lagged behind the Powerwall, the author suggests that the Solar Roof’s premium pricing and brand cachet make it a high‑margin product that could scale as installation costs drop.

Tesla’s Energy Services platform, which bundles solar, storage, and grid‑service contracts, is described as a “next‑generation business model” that can convert one‑off sales into subscription revenue. The writer cites the company’s recent partnership with the electric utility company NextEra, wherein Tesla’s energy services will help the utility provide virtual power plant (VPP) solutions to its customers. Such arrangements could bring in millions of dollars of recurring revenue as utilities look for more flexible, decentralized solutions.

Why It’s Underrated

A central thesis of the piece is that the Energy unit is undervalued because it is too small relative to the EV business and because it lacks the headline‑grabbing AI narrative. The writer argues that investors tend to focus on the high‑growth EV segment and the ambitious, yet uncertain, AI roadmap, overlooking the steady cash‑flow potential of the Energy unit. The article points out that the Energy unit’s revenue is already largely cash‑positive, with the cost of goods sold (COGS) for battery cells being absorbed by Tesla’s vertically integrated supply chain.

Further, the writer references an interview with a former Tesla executive who says that the Energy unit “has the ability to become the next $10 billion‑plus segment” if Tesla can scale its battery cell production and secure more utility contracts. The piece highlights that the company’s new Gigafactory in Austin, Texas—currently producing the 4680 battery cells—has already reduced cell cost by 20% and is set to power the Energy unit’s Megapack production.

Competitive Landscape and Risks

While the article paints a rosy picture, it also acknowledges competitive pressures. Rivals such as LG Energy Solution, Panasonic, and smaller start‑ups are also advancing battery technologies. The writer notes that Tesla’s Energy unit must fend off competition not just in raw battery technology but also in software that enables real‑time grid balancing. There is also regulatory risk, especially as utilities increasingly scrutinize the integration of distributed energy resources (DERs). However, Tesla’s partnership with utilities and its growing experience in grid services give it a potential edge.

Conclusion and Takeaway

The article concludes that Tesla’s Energy unit, though currently a small piece of the company’s pie, is poised for exponential growth. The author urges investors to pay closer attention to the Energy segment’s revenue trajectory, high margins, and strategic partnerships with utilities. With the global push for net‑zero emissions, the demand for battery storage and renewable integration is set to accelerate, and Tesla could capture a significant share of that market. The piece ends by suggesting that a rebalancing of analyst coverage and investor focus—giving the Energy unit its due attention—could unlock a more accurate valuation of Tesla’s long‑term prospects.