FYI: Tesla Energy’s growing influence is reshaping valuations, with incredible growth in deployment and margins.
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### Tesla Energy’s Untapped Potential: A Game-Changer for Future Valuation
A recent analysis by Baird Equity Research’s analyst Ben Kallo has spotlighted a rapidly expanding but often overlooked segment of Tesla’s business—Tesla Energy. Kallo emphasizes that Tesla Energy’s contribution to the overall company valuation deserves significant attention.
#### An Underestimated Asset
In his detailed note, Kallo identified Tesla Energy as “one of the most under the radar aspects of the broader business.” According to his estimations, Tesla Energy contributes approximately $41 per share to Tesla’s total valuation, an eye-opening figure for investors and stakeholders alike.
“Its contribution to the company’s valuation should not be underestimated. Rapid growth in deployments and gross margins, which surpass those of the Automotive business, have begun shifting attention to this corporate component,” Kallo stated.
#### Impact of Powerwall and Megapack
Kallo also shed light on two critical products driving Tesla Energy’s success: the Powerwall and the Megapack. The Powerwall serves as a home battery storage solution, often utilized in virtual power plant (VPP) systems. On the other hand, the Megapack is engineered for large-scale grid use, representing a powerful tool for utility companies.
“Utility-scale renewable energy has proven to be one of the most promising sectors in recent years. Despite the challenges posed by higher interest rates and substantial upfront costs for renewable technologies, large developers have managed to absorb these pressures effectively. This trend is likely to persist as interest rates remain elevated,” Kallo observed.
#### Financial Projections and Factory Ramps
Baird’s analysis extends its projections for Tesla Energy through 2029. The firm’s base estimates forecast key financial metrics including 25% gross margins and 12% EBIT margins, with interest and tax expenses proportionate to the Energy business’s revenue share.
However, Kallo pointed out that these projections might be conservative, especially considering Tesla’s infrastructure expansions. “TSLA’s Megapack factory in Lathrop, CA, is expected to reach an annual production capacity of 40 GWh by the end of 2024, with the Shanghai factory coming online in 2025. Our assumptions may understate the actual volume,” Kallo noted.
#### Market Ratings and Insights
With these insights, Baird maintains an “Outperform” rating for Tesla’s stock, setting a price target of $280. This outlook underscores the strategic importance of Tesla Energy for the company’s future growth and competitive positioning.
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Authored by William Kouch, Editor of Automotive.fyi
