Tesla announces third Megafactory as competition heats up

Elon Musk announced that Tesla is already building a third Megafactory to produce more Megapacks just as the competition in the energy storage space heats up

Energy storage was Tesla’s silver lining this quarter.

While its main business, the automotive business, shrank in both revenue and margins, its energy storage business grew more than 100% year-over-year – having deployed 31.4 GWh versus 14.7 GWh in 2023.

That’s mainly due to its Megapacks, its popular utility-scale energy storage systems, and the production ramp at its Megafactory in California, where it produces those battery packs.

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Tesla also recently completed construction at its second Megafactory, this one in Shanghai, China, and now, the company revealed that it is building a third Megafactory.

CEO Elon Musk said during the conference call following the release of its Q4 2024 financial results yesterday:

So, we have our second factory, which is in Shanghai, that’s starting operation, and we’re building a third factory. So, we’re trying to ramp output of the stationary battery storage as quickly as possible.

The CEO didn’t say where Tesla is building this new factory or what he meant exactly by “we’re building”. It’s unlikely that the factory is in construction.

Tesla announced an annual planned capacity of 40 GWh for each of the first Megafactory.

While Tesla’s growth in energy storage has been nothing short of impressive, it has been fueled partly by price cuts lately.

Over the last year, Tesla decreased the price of the Megapack from $1.5 to $1 million. Tesla is highly opaque with its financial results and doesn’t break down its revenue and costs per model or product.

It bundles all its energy business together, solar and storage. However, we do know that Tesla’s solar business now accounts for a small fraction of its overall energy business.

If we breakdown Tesla’s reported energy deployment compared to revenue and costs, we can see that Tesla’s profits per GWh deployed hit a record low for the year last quarter:

That’s happening as competition is heating up and gunning for Megapacks, which is still clearly the market leader.

Tesla doesn’t produce its own battery cells to make Megapacks, and two of Tesla’s main battery cell suppliers, BYD and CATL, have recently released products to compete with Tesla’s Megapacks.

While demand still outpaces global energy storage production, Tesla might have to reduce prices further to keep being able to grow this segment of its business.