Authored by Louis Stevens
I recently published a brief entitled, "Tesla in Five," in which I shared my thesis for Tesla in five relatively concise points.
Today, I will share a series of charts that elaborate the the fourth point, i.e., the growth of Tesla's Energy business.
I see Tesla's Energy business as it's "AWS," and this analogy further communicates what I mean: Tesla's EV business is to Amazon's book business as Tesla's Energy business is to Amazon's AWS business.
Tesla's Energy business is the next, arguably more attractive, rapidly growing business for Tesla, in the same way Amazon's AWS, in the early 2000s, was its next, certainly more attractive, rapidly growing business for Amazon, on which, today, large portions, if not all(!), of its valuation is based. (I would personally buy AWS for $2T because I think it could be argued that its net present value (NPV) is actually greater than $2T when considering the cash flows it will produce in the decades ahead).
With these ideas as our platform, first, let's review the information I shared in Tesla in Five, then I will share a series of charts that substantiate this information:
"Lastly, we have Tesla Energy, which I believe to be the most compelling line of business that Tesla operates today. Specifically, Tesla Energy sells a product called Megapack, and this represents utility-scale stationary storage, and this represents a solution to the most difficult and vexing problem of the alternative energy revolution: Storage of energy generated by alternative sources. Tesla's utility-scale stationary storage Megapack product represents a commercially viable solution to this problem, and, as the recent Tesla data suggested, it's being adopted. Tesla has laid out a goal of 1.5k gwh of stationary storage deployments by the early 2030s, and it just reported numbers indicating that it's at about 40 gwh/year presently. Importantly, this is a business that possesses higher margins than its legacy auto business, so scaling to 1.5k gwh would create what amounts to one of the largest energy companies on earth. Tesla currently sells each Megapack at about $250/kwh. At 1.5k gwh, Tesla energy would generate hundreds of billions in sales at these unit economics. I believe Tesla's Megapack business is "its AWS," so to speak, and the recent gwh delivery numbers were extremely heartening."
-Tesla In Five
Image of a Tesla Megapack Deployment Next To A Solar & Wind Farm
Importantly, this product's adoption will grow in lockstep with:
- The use of renewable energy sources and the elimination of natural gas powered peaker plants
- The growth of electric vehicles that will put increasing demand on the electrical grid (imagine all energy currently distributed through gas stations being distributed through residential electrical grids)
And these two important factors for the growth of Tesla's Megapack have been themselves growing rapidly, as the data below illustrates:
Renewable Energy As A Percent Of Total Energy Consumption Has Increased In The Last 30 Years
Greater Renewable Energy Consumption Requires Greater Utility-Scale Stationary Storage Usage (Megapack)
This Has Become More Viable As Battery Costs Have Declined
Greater Renewable Energy Consumption And Lower Battery Costs Have Resulted In Rapidly Growing Stationary Storage Investment
And This Is Reflected In The Growth Of Tesla's Energy Business, Which Just Grew 150%+ Year Over Year
In addition to renewable energy consumption precipitating further stationary storage demand, the growth of EVs within earth's vehicle fleet will also precipitate station storage demand, and we have a long, long road ahead for EV growth, as the charts below suggest.
Global Electric Vehicle Stock Continues To Grow Rapidly
Number Of New Cards Sold By Type (Electric Vs Non-Electric) Illustrate That We Still Have A Long Road For Growth Ahead
In closing, Megapack deployments have grown rapidly in recent years and specifically in Tesla's Q1'24; however, the runway for growth remains exceptionally long, and the data above illustrates this reality.
This suggests that Tesla's Energy business could very well reach its gwh deployment target of the very ambitious 1,500, which would result in, at Megapack's current unit economics of ~$250/kwh, an energy business that generates hundreds of billions of dollars in revenue that is higher margin than Tesla's auto business (which likely informs why Elon Musk has been willing to open the Supercharger Network. He realizes the prize is Energy, and the prize will come sooner with more EV adoption broadly, Tesla or otherwise).
Disclosures:
L.A. Stevens has rated Tesla a "buy."
