Electric stuff: Tesla’s business which may have more promise than autos, robots, or FSD

Tesla’s (NASDAQ:TSLA) recent rally may be more than just momentum or meme buzz. The rally began shortly after Tesla (TSLA) disclosed that it deployed 9.4 gigawatt hours of energy storage products in Q2, which is more than double the level seen in Q1. The 9.4 gigawatt hours represent roughly enough electricity to power 10,000 homes in the U.S. for an entire year, and are high enough to move the meter with quarterly revenue and profit.

Morgan Stanley now forecasts Tesla’s (TSLA) energy business to reach 100GWh in storage deployments by 2028, which is three years earlier than its prior forecast for that level of demand. The firm noted that energy storage demand is accelerating globally amid surging generative AI needs, and Tesla (TSLA) is positioned to grow its share in that market. Morgan Stanley now values Tesla (TSLA) Energy at $50 per share, up from a prior valuation of $36. That brings the total value of the energy business to $183 billion, vs. the prior valuation of $131 billion. Notably, Tesla (TSLA) Energy has a higher margin profile than either the solar deployment business or the auto business. It is also more tangible than either the Optimus humanoid or robotaxi concept, with customers already lining up. Although Morgan Stanley raised its projection for Tesla (TSLA) Energy, the outlooks for battery electric vehicle penetration and EV sales for 2030 were lowered. That led to a $14 cut in the estimated value of the core auto business.

The large shadow Tesla (TSLA) is casting in the clean tech sector has implications for other stocks as well. In the residential sector, the strong demand disclosed by Tesla (TSLA) is seen as a positive for Sunrun (RUN). It is seen as a mixed signal for FLNC. “On the positive side, this is indicative of continued demand strength in the end markets that FLNC serves. On the negative side, however, this is a sign of strong competition from a domestic manufacturer with significant scale, manufacturing prowess, and brand recognition – we believe this was a contributing factor for the recent weakness in the stock,” updated analyst Andrew Percoco. There could also be competitive concerns for SolarEdge Technologies (SEDG) and Enphase Energy (ENPH), he warned.

As for the auto sector, lush margins from the energy storage business could insulate Tesla (TSLA) from some of the industry headwinds that could clip earnings for competitors such as General Motors (GM), Ford Motor (F), Toyota Motor (TM), and Rivian Automotive (RIVN).