Tesla (NASDAQ:TSLA) energy has been an important business segment after the SolarCity acquisition in 2016.
Despite the expanding role of the energy sector, Tesla’s energy revenue actually made up only 6% of the company’s total sales as of fiscal 3Q 2021.
While the energy revenue contribution may look minuscule, it has been growing at an average YoY growth rate of 40% since fiscal 2017.
However, Tesla’s energy is still an unprofitable business and has reported negative gross margins for several quarters in fiscal 2021.
For your information, Tesla’s energy and automotive are separate business segments.
Despite the difference, Tesla’s energy and automotive have great synergy.
For example, Tesla wants its automotive customers to charge their vehicles from renewable energy generated from its own solar and battery setup.
By doing that, Tesla not only gets extra sales revenue but also provides a complete renewable energy experience to its automotive customers.
Aside from home applications, Tesla’s solar and battery technology also is applied on its own supercharger stations to provide renewable energy for charging purposes.
All told, in this article, we will look at several sales-related metrics of Tesla’s energy, including the gross margin and growth rates, to find out how the energy business has been doing in terms of profitability and growth.
Apart from the revenue-related metrics, we also look at the number of solar and storage deployed over the years.
Without further ado, let’s get started!
Tesla’s Energy Business
Before we begin, let’s take a look at the following diagram that explains a bit about Tesla’s business segments.
As shown in the snapshot above, Tesla’s energy is one of the main business segments that is located in the same hierarchy as the automotive sector.
Tesla’s energy sector gets its sales from two major sources:
- 1. Energy generation and storage sales
- 2. Energy generation and storage leasing
Tesla’s energy generation and storage sales revenues come from the sales of solar energy systems and energy storage products to residential, small commercial and large commercial and utility grade customers.
On the other hand, Tesla’s energy generation and storage leasing revenues come from the leasing of solar energy systems as well as electricity to commercial and retail customers.
In this case, Tesla is the lessor and it owns the assets.
Additionally, Tesla’s leasing revenues also come from solar energy systems where customers purchase electricity from Tesla under a power purchase agreement.
It looks like we are all set.
Let’s move on to look at the company’s energy revenue or sales numbers.
Tesla’s Energy Generation and Storage Revenue (Quarterly)
The chart above shows Tesla’s total energy or solar revenue for the period from fiscal 2017 to 2021.
As mentioned in prior discussions, Tesla’s energy or energy generation and storage revenue comes from the sales and leasing of solar energy systems, electricity and energy storage products such as batteries and large-scale battery packs.
For your information, Tesla completed the acquisition of SolarCity in 3Q16 and consolidated the financial results from SolarCity starting in 4Q16.
Prior to the SolarCity acquisition, Tesla’s sales revenue from the energy business was insignificant.
After the SolarCity acquisition, Tesla’s energy revenue started to soar and continued to grow quite significantly.
As of 3Q 2021, Tesla’s energy revenue came in at $806 million on a quarterly basis, a record high for the company.
Year over year, Tesla’s energy revenue reported in 3Q 2021 represents a growth of nearly 40%.
While Tesla’s energy revenue has been on a rise on a long-term basis, it actually grew at a much faster pace in fiscal 2021.
Tesla’s Energy Generation and Storage Revenue (TTM)
The TTM or trailing 12-month plot above is created to smooth out the quarterly curve and to better show the trend of Tesla’s energy sales.
From a TTM perspective, Tesla’s energy revenue grew the most in the early stage of the business which was right after the SolarCity acquisition.
Thereafter, Tesla’s TTM revenue has remained flat in fiscal 2018 and has even declined slightly in fiscal 2019.
Nevertheless, Tesla’s energy revenue has returned to growth again in fiscal 2021 as shown in the TTM plot.
As of Q3 2021, Tesla’s TTM energy revenue soared to a record-high of $2.85 billion, representing a year-on-year growth rate of 70%.
Tesla’s Solar Deployment (TTM)
The discussion of Tesla’s energy without including the solar deployment is deemed incomplete.
Therefore, in this section, I have included a chart above that represents Tesla’s solar deployment presented on a TTM basis.
All said, according to the chart, Tesla’s solar deployment has significantly recovered in fiscal 2021 compared to a year ago.
As of fiscal 3Q 2021, Tesla’s solar deployment clocked at 350MW on a TTM basis, a new high since fiscal 2018 and represents a year-on-year growth rate of 100%.
At this amount of deployment, Tesla’s solar has already recovered to the level reported in pre-COVID periods and is back to growing again after slipping considerably in fiscal 2020.
Tesla’s Energy Storage Deployment (TTM)
The TTM chart above shows that Tesla’s energy storage deployment has been on fire.
According to the chart, Tesla’s energy storage deployment has been growing significantly since fiscal 2018.
As of fiscal 3Q 2021, Tesla’s energy storage deployment grew more than 130% year-over-year to as much as 4,600 MWh, a record high since fiscal 2018.
Unlike the solar deployment which we saw in prior discussions, Tesla’s energy storage deployment has never slipped even during fiscal 2020 despite having the COVID-19 as well as the supply chain headwinds.
Tesla’s Energy Gross Margin (Quarterly)
As mentioned, the gross margin is a metric that measures the gross profitability of a product.
A high gross margin usually indicates a competitive advantage a company has over its competitors.
All told, on a quarterly basis, Tesla’s energy gross margin has been on a roller-coaster ride in the last 3 years, bouncing dramatically between -20% and 30%.
Despite achieving a high gross margin back in fiscal 2017 in the energy segment, the figure slowly declined to less than 5% and even to the negative region as of fiscal 2021.
A likely cause of the declining gross margin may have been the growing costs of production/installation in the energy sector.
One notable example is the solar roof in which Tesla needs to painstakingly train its staff for the installation to prevent years of leaks as well as damages down the road.
In fiscal 3Q 2021, Tesla’s energy gross margin came in at only 0.4% compared to the prior result of 2.5%.
From a comparison perspective, Tesla’s automotive sector, including the automotive sales and automotive leasing revenues, generates a gross margin between 20% and 40%, indicating that the energy segment is significantly less profitable than its automotive counterpart.
Tesla’s Energy Gross Margin (TTM)
The TTM chart above looks much smoother compared to the quarterly plot.
As seen, the TTM plot clearly depicts a downtrend of Tesla’s gross margin on a long-term basis.
Since fiscal 2017, Tesla’s energy gross margin has been on a decline from about 25% to only -4% in the latest quarter.
The decline in Tesla’s energy gross margin was the steepest in fiscal 2020 and it further slipped to the red in fiscal 2021.
Tesla’s declining gross margin can be due to a couple of factors.
The major one can be attributed to a lower sales volume.
In Tesla’s case, its energy segment is still relatively small and has yet to reach the scale for mass production.
For this reason, Tesla’s cost of production in the energy sector is still relatively high as of fiscal 2021, and hence, the negative gross margin.
Ratio of Tesla’s Energy Revenue to Total Revenue
Tesla solar business contributed around 10% of sales to total revenue prior to 2019 as shown in the chart above.
This figure dropped dramatically in recent quarters and reached as low as 6% as of Q3 2021.
Tesla’s ratio of energy sales to total revenue has maintained at the 6% level for quite a few quarters.
The decline of the ratio may have been caused by Tesla’s focus on the automotive sector, specifically, the Model 3 and Model Y ramp-up in recent years which have significantly bumped up the automotive revenue.
At only 6% of total revenue in the latest quarter, Tesla’s energy sector does not seem to be a major growth driver for the company at this moment.
Nevertheless, Tesla’s energy business will remain an integral part of the company’s strategy in transitioning the world to using renewable energy.
Tesla’s Energy vs Automotive Revenue
To get an idea of how much Tesla’s energy business has progressed with respect to automotive revenue, the chart above shows the revenue comparison between the energy and automotive segment on a TTM basis.
That said, the chart above depicts a huge contrast between Tesla’s energy and automotive revenue and the gap is growing.
As of fiscal 3Q 2021, Tesla’s automotive segment was 14X bigger than its energy counterpart in terms of sales figures.
For example, in 2021 Q3, Tesla’s TTM automotive revenue totaled $41 billion while the TTM energy revenue clocked in at only $2.9 billion in the same quarter.
Prior to 2021, the gap between Tesla’s automotive and energy sales was much smaller compared to its latest result, illustrating that Tesla’s automotive segment had grown at a much faster pace than its solar business.
That said, Tesla’s energy may grow much faster in the future considering that it is still in its infancy now.
Tesla believes that the energy business may ultimately grow to be as huge as or even bigger than the automotive business someday in the future.
Tesla’s Energy Revenue Sequential Growth Rates
In the 3rd quarter of 2021, Tesla’s energy sales grew only 0.62% sequentially compared to the prior result of 62% reported in 2Q 2021.
Tesla’s Energy Revenue Year Over Year Growth Rates
Tesla continued to report a positive growth rate that clocked in at 39% in solar revenue in the 3rd quarter of 2021 compared to a much higher growth rate of 116.5% reported in the prior quarter.
As of 2021 Q3, Tesla’s energy segment is a low profitability business as seen from the declining gross margin from fiscal 2018 to 2021 to below 0% in the latest quarter.
Tesla’s energy gross margin came in at -4% in Q3 2021 on a TTM basis and 0.4% on a quarterly basis.
At a negative gross margin, Tesla loses money for every single energy product that gets delivered.
The declining margin has to do with the low sales volumes in the energy sector, thereby causing costs of production to be on the high side.
Despite having a growth rate that averages more than 40% since fiscal 2017, Tesla’s energy sector continues to incur losses.
While the energy sector has been unprofitable, Tesla’s energy storage sales reached a record high as of Q3 2021, reportedly at 4,600 MWh being delivered on a TTM basis.
Similarly, Tesla’s solar deployment also recorded a new high at 346 MW in fiscal 2021 3Q on a TTM basis.
Therefore, at only 6% of total sales as of 3Q 2021, Tesla’s energy has a lot of potentials and may even out-grow its automotive sector someday to become the most important business in the company.
References and Credits
1. All financial figures in this article were obtained and referenced from Tesla’s quarterly and annual reports available in Tesla Update Letters and Presentations.
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