Tesla’s energy storage business is growing faster than any other part of the company

Tesla's rapidly expanding energy storage division helped prevent what would have otherwise been a far more disappointing earnings report.

In 2025, Tesla reported that its profit fell 45% compared with 2024, mainly due to declining electric vehicle sales. While investors had largely priced in weaker vehicle demand, Tesla still beat Wall Street's earnings and revenue expectations, driven primarily by its energy storage business.

According to the company's regulatory filings, Tesla deployed a record 46.7 gigawatt-hours of energy storage products in 2025, a 48% year-over-year increase. Large stationary battery systems such as the Megapack and Powerwall, combined with solar installations, now account for nearly a quarter of Tesla's total gross profit.

In the most recent quarter, the Megapack alone accounted for $1.1 billion of the energy storage segment's $3.8 billion in gross profit for the year. Overall, storage and energy generation revenue rose 26.5% to $12.8 billion.

These products are also among Tesla's most profitable. The energy generation and storage segment posted a gross margin of 29.8%, nearly double the margin Tesla earns from selling vehicles.

Energy storage is expected to play an even larger role in Tesla's near-term outlook. Large-scale storage projects — such as those built for utilities and data centres — are typically milestone-based, with revenue recognized as milestones are reached. In its annual 10-K filing with the U.S. Securities and Exchange Commission, Tesla said it expects to realize $4.96 billion in deferred revenue in 2026 from projects already underway. That figure is more than twice the deferred revenue recognized from storage projects in 2025.

The business is not without challenges. The One Big Beautiful Bill Act phased out tax credits for residential energy storage systems like the Powerwall. However, commercial tax credits for products such as the Megapack and Megablock are set to continue through the mid-2030s. Tesla also warned that tariffs and other provisions in the legislation could raise battery cell costs.

While energy storage sales rose due to higher volumes, Tesla noted that the average selling price of the Megapack declined, pointing to increasing competition in the utility-scale battery market.

Despite those headwinds, Tesla struck an optimistic tone about this segment's future.

"Despite these challenges, as AI infrastructure drives rapid load growth, we see opportunities for our energy storage products to stabilize the grid, shift energy when it is needed most and provide additional power capacity," the company said in its earnings report.