Is Tesla’s Utility Scale Battery Unit A Winner?

Key Takeaways

• Tesla’s revenue has grown 56% year over year but missed investor expectations in Q3.
• Most of the revenue increases came from an expansion of its vehicle production business.
• Q3 saw some of Tesla’s fastest growth ever in its battery and solar businesses, with the company delivering nearly double the storage capacity in Q3 as it did in Q2.

Tesla announced its financial performance for Q3 this past week. In its official communications, it called this time period “another strong quarter with record revenue, operating profit, and free cash flow.” In the previous 12 months, the company produced cash flow of more than $8.9 billion.

However, the company’s stock fell in response to the announcement of underperformance compared to expected revenue numbers. We’ll break down Tesla’s Q3 performance and how its scale battery unit is performing.

Tesla Q3 Financial Figures

For Q3 2022, Tesla reported the following numbers:

• Automotive revenues: $18.692 billion
• Automotive gross profits: $5.212 billion
• Total revenue: $21.454 billion
• Total gross profit: $5.382 billion
• Operating expenses: $1.694 billion
• Income from operations: $3.688 billion
• Capital expenditures: $1.803 billion
• Free cash flow: $3.297 billion

Year over year, the company’s total revenue has grown by 56%, with increases coming largely from scaled up vehicle deliveries. Profitability has improved as well and is now up $3.7 billion year over year.

The company also expanded some of its other operations, with major growth in storage deployments. Though the production capacity of solar panels deployed shrunk from 106 MW in Q2 to 94 in Q3, the amount of storage deployed exploded from 1,133 MWh in Q2 to 2,100 MWh in Q3.

Tesla Batteries

While many people know Tesla for its electric vehicles, its business also includes other clean energy technologies — primarily solar energy and energy storage.

One of the areas where Tesla saw the most growth this quarter was in its battery production and deployment — nearly doubling the storage capacity deployed compared to the previous quarter. Deployments have increased by 62% year over year and now total 2.1 GWh.

Tesla’s energy storage offerings consist of two main products: Powerwalls and Megapacks.

Tesla Powerwalls are consumer products that serve as home batteries. They generally work in tandem with solar energy production and provide a way to store excess solar power onsite. The battery then provides energy to the home when there is too little sun to power the home or as a backup in the event of a power outage.

Megapacks are utility-level energy storage units. Utility companies can use these batteries to store extra energy and release it to the grid during times of peak use. This allows the utilities to manage production and demand more effectively and can help them avoid the need for more expensive energy production methods to meet demand.

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Other use cases for Megapacks include building micro power grids that are disconnected from the main grid and smoothing out the flow of power released to the grid via wind or solar.

Megapacks can integrate with Powerhub, a program that helps power plants manage and distribute their energy. They also work with Autobidder, a Tesla program that uses machine learning to buy and sell energy and to forecast energy prices and demand.

Tesla has reiterated that it has high hopes for its energy storage business based on its massive growth “despite semiconductor challenges continuing to have a greater impact on [their] energy business than [their] automotive business.”

The company also notes that current levels of demand exceed its ability to supply, though it hopes to improve that situation by ramping up production at a dedicated 40 GWh Megapack factory located in Lathrop, California.

Overall, the company increased its revenue from energy generation and storage from $866 million to $1.117 billion between Q2 and Q3, with an increase in costs from $769 million to $1.013 billion. That translates to an increase in storage and generation-related profit from $97 million to $104 million.

Though current revenue and profits in Tesla’s energy division are dwarfed by its vehicle operations, the company still sees batteries as an essential part of its company.

What’s happening with Tesla Stock?

Tesla’s stock price fell in response to its earnings release due to revenue numbers that came in lower than investors had expected. However, the market experienced significant gains overall, which saw Tesla quickly recover most of its losses, ending the week up roughly 2%.

Year to date, TSLA has lost a bit more than 44% of its value — more than double the losses experienced by the S&P 500, which has dropped 18.89% year to date, as of this morning, Friday October 28.

What this all means for investors

Investors interested in Tesla will likely want to pay closer attention to its vehicle business than its solar and battery business. Revenues from vehicles exceeded $18.6 billion in Q3 compared to just $1.117 billion from energy generation and storage.

However, Tesla is investing heavily in battery production, both for its storage equipment and for its own vehicles. In its quarterly report, Tesla noted that it “continues to believe that battery supply chain constraints will be the main limiting factor to EV market growth in the medium and long terms.”

As Tesla increases its battery production capacity, it may be able to roll out even more storage and keep battery costs low for its own EVs, which would be a boon for the company. Investors interested in green technology in general (and who don’t mind significant exposure to Tesla’s vehicle production business) might want to invest in the company while its share price is on a relative downswing.

Bottom Line

The stock market has been volatile in the past year due to rising inflation and fear of an oncoming recession. One of the drivers of inflation has been energy prices, including both home electricity prices and gasoline. Tesla is well positioned to take advantage of increasing reliance on renewables and falling dependence on gas, making it an appealing stock to many investors.

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