With Teslaof (TSLA -0.48%) With the fourth-quarter earnings report coming next week, investors will likely be looking for an update on management’s expectations for vehicle deliveries this year. After all, the recent price cuts suggest that demand may weaken as interest rates rise, making car affordability more difficult for those who finance their purchases. Getting an update on management’s expectations for deliveries for the entire year is, therefore, important.
Meanwhile, what Tesla says about vehicle sales, vehicle demand, and its forecast for vehicle deliveries for the rest of the year may be the most important thing to watch when the electric car maker reports on earnings on Wednesday, there are a few other key areas that investors. should be checked as well. For example, one part of Tesla’s business that could easily be undercut is the company’s fast-growing energy segment. Although it only represents a small fraction of the company’s sales today, it’s growing like crazy. Moreover, its strong growth can continue even in an uncertain macroeconomic environment.
Let’s take a closer look at this small but important part of the business.
Tesla’s energy business
Although Tesla’s Q4 automotive revenue growth of $20.2 billion was a big jump from the $15.0 billion reported in the year-ago period, this 34.7% growth was significantly slower than energy business company growth rate. Tesla’s energy business, which includes sales from solar products and energy storage products, saw revenue surge more than 90% year over year to $1.3 billion.
Growth in this segment was driven by a 152% year-over-year increase in energy storage deployments, measured in gigawatt hours deployed, and an 18% year-over-year increase in increase in solar deployments, measured in megawatts.
Zooming in on Tesla’s energy storage business, which is likely to exceed solar sales for the foreseeable future, Tesla deployed 2.5 gigawatt hours (GWh) of energy storage in Q4 and a total of 6.5 GWh for the full year of 2022. This is up from about 4 GWh in 2021.
Why rapid growth must continue
There are many reasons to expect strong growth in Tesla’s energy business throughout 2023.
First and foremost, Tesla said in its Q4 update that demand for its storage products “remains in excess of our ability to supply.” To meet this challenge, the company is ramping up production of energy storage products at its factory in Lathrop, California, where Tesla plans to eventually produce up to 40 GWh of capacity per year.
“This factory should help further accelerate the growth of energy storage deployments,” Tesla said in its Q4 update.
In addition, with utility companies being the largest customer of Tesla’s energy storage products, it is worth noting that this customer is likely to be unaffected by an uncertain macroeconomic environment. Utilities are known for their stable revenue streams in most macroeconomic environments. With stable and predictable businesses, utilities are unlikely to reduce their appetite for capital projects, especially if the projects have the potential to ultimately save them money or prevent losses. electricity that negatively affects income.
While investors shouldn’t count on Tesla’s energy business growth to remain as strong as it has been recently, they shouldn’t rule it out either. Tesla management has emphasized for some time that its energy storage business is growing faster than its car sales and is becoming more important to the overall business. In 2023, the company plans to not only promote sales growth in the energy business but also cost efficiencies. This means that the business will not only see strong revenue growth in 2023 but an improvement in operating margin, too.
Investors will get more insight into this business when Tesla reports earnings after the market closes on Wednesday, April 19.
Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares in the companies mentioned. The Motley Fool has positions and recommends Tesla. The Motley Fool has a disclosure policy.