Dive Brief:
- Tesla’s energy storage deployments shot up by 222% year over year in the second quarter, reaching around 3.7 GWh, thanks in part to the ramp up of the first factory dedicated to its Megapack battery product, located in Lathrop, California, the company reported Wednesday.
- The company’s solar deployments, on the other hand, totaled 66 MW — roughly the same as the last quarter, and a decline from the 106 MW of solar deployed in the second quarter last year — which Tesla attributed to a high interest rate environment that is stalling solar purchases across the industry.
- Tesla is also developing virtual power plants, including a project to pay customers in Texas for participating in a VPP to provide grid support to the Electric Reliability Council of Texas, a company representative said on its earnings call Wednesday. However, bringing VPP capabilities to customers “requires working through a fractured regulatory environment on a jurisdiction-by-jurisdiction basis,” the official said.
Dive Insight:
Tesla’s second-quarter income grew 20% to $2.7 billion as its revenue jumped 47% to almost $25 billion compared to the second quarter of 2022, the company reported. Its operating margin remained at around 10%, which it attributed partly to cost reduction efforts and the strong performance of its energy business.
Amid ongoing economic uncertainty, rising interest rates, consumer confidence volatility and regulatory change, Tesla is focused on continuing to invest in capacity expansion in its vehicle factories as well as supercharging network and battery processes, Chief Financial Officer Zachary Kirkhorn told analysts on the earnings call.
“Second, we continue to work towards our goals of maximizing volumes on both our vehicles and energy business, but most importantly, doing so in a way that generates the capital to continue our pace of R&D and capital investments,” Kirkhorn added.
The energy business in particular saw improved margins and gross profit, driven by cost reductions and deal economics, particularly with the Megapack, Kirkhorn said. The Megapack battery product has a 3 MWh capacity and is designed for utilities and large commercial projects.
Tesla’s energy storage deployments increased year-over-year in the second quarter, due to the ramp up of the company’s 40-GWh “Megafactory” — planned as the first of many — in California. However, storage volumes can be volatile from quarter to quarter, based on the types of projects and specific revenue recognition milestones, Kirkhorn said. The company deployed around 3.9 GWh the first quarter of 2023, and 1.1 GWh the second quarter of 2022.
Tesla’s second quarter 3.7 GWh storage deployment is a substantial amount for one quarter, particularly given the company’s year-on-year growth, Anand Gopal, executive director of policy research with Energy Innovation, said in an email. For context, U.S.-wide energy storage deployments in the third quarter of 2022 were 4.7 GWh, he added.
While Tesla pointed to the high interest rate environment as a reason for the drop in solar deployments, Gopal said the company has never been a major player in the solar business.
“They’ve usually prioritized their vehicle and storage business over solar installations. So, I wouldn’t draw general conclusions about interest rates being the main cause of their solar install decline,” he said.
On the residential energy side, Tesla recently surpassed a half million installed Powerwalls — a home battery system — and this week launched a program that allows Tesla Powerwall and vehicle customers to charge their vehicles using excess solar, a company representative said. The company has also begun compensating customers in Texas that are participating in its VPP program.
Tesla runs a similar VPP in Pacific Gas & Electric’s footprint in California, offering customers $2/kWh for electricity that they export back to the grid. Last summer, when California’s grid was strained, the VPP was activated for the first time and contributed up to 16.5 MW of solar power to the grid.
However, these efforts require Tesla to work in a complicated regulatory environment, according to the company.
“In the long run, the value of residential energy software and hardware will be driven by the level of market access that utilities, market operators and regulators permit,” the company representative said.
