Sign In or Create an Account.

By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy

Energy

Tesla’s Fastest Growing Business Is About to Get Screwed by Tariffs

“Rapidly evolving trade policy” could weigh on demand, according to the company’s first-quarter earnings report.

Elon Musk on a container ship.
Heatmap Illustration/Getty Images

Tesla’s fastest growing business is its energy storage products — which also happens to be the part of Tesla’s business that’s most affected by the onslaught of new tariffs, especially on China.

“While the current tariff landscape will have a relatively larger impact on our Energy business compared to automotive, we are taking actions to stabilize the business in the medium to long-term and focus on maintaining its health,” the company said in its first quarter earnings report, released after the market closed on Tuesday. The report also credited “rapidly evolving trade policy” for creating supply chain and market uncertainty. “This dynamic, along with changing political sentiment, could have a meaningful impact on demand for our products in the near-term.”

“The impact of the tariffs on the energy business will be outsize” since it sources battery cells from China, Tesla’s chief financial officer Vaibhav Taneja said on the company’s earnings call. While it’s in the process of commissioning equipment to make its own battery cells, Taneja said, that facility will only be able to service a “fraction” of the company’s needs. The company is also working on building out a non-China battery supply chain, “but that will take time,” Taneja said.

The company’s overall revenues of $19.3 billion and profits of $3.1 billion were 9% and 15% lower, respectively, than they were a year ago, and short of what analysts expected. Total automotive revenues fell by 20% to $14 billion.

Tesla’s energy generation and storage revenue of $2.7 billion, meanwhile, was notably lower than the $3 billion it reported from the three months prior, although it was also 67% percent higher than the first quarter of 2024.

The energy segment — which includes the company’s battery energy storage businesses for residences (Powerwall) and for utility-scale generation (Megapack) — has recently been a bright spot for the company, even as its car sales have leveled off and declined. Energy revenues grew from $1.4 billion in the fourth quarter of 2023 to just over $3 billion a year later, a more than 100% gain, while overall revenue fell 8% in the same time period.

“The energy business is doing very well,” Tesla CEO Elon Musk said on the company’s earnings call, and predicted that the business would eventually deploy terawatts of capacity per year. (It deployed over 36 gigawatts in the past year.)

Some analysts consider Tesla’s energy business to be nearly as valuable as its auto business. Morgan Stanley analyst Adam Jonas valued the energy business at $67 per share earlier this week, compared to $76 per share for the company’s core auto business.

Tesla declined to give any specific growth outlook for the rest of 2025. “The rate of growth this year will depend on a variety of factors, including the rate of acceleration of our autonomy efforts, production ramp at our factories and the broader macroeconomic environment,” the company said, adding that it would revisit its growth guidance in the second quarter.

While Tesla has made huge efforts to onshore its vehicle supply chain, including its batteries, in pursuit of maxing out tax credits available under the Inflation Reduction Act, its stationary energy storage business is closely linked to China, thanks to its use of lithium iron phosphate technology, a.k.a. LFP, whose supply chain is almost entirely Chinese.

All existing policies combined add up to a 156% surcharge on battery imports from China. Before Trump’s early-April tariff announcements, energy analysts at BNEF had forecast that battery prices would drop 13% this year. They now project that prices for stationary storage batteries will rise by 58%, to $322 per kilowatt-hour.

Early last year, Bloomberg reported that Tesla was working on using old equipment from Chinese battery giant CATL at a new factory in Nevada to build cells for its Megapack storage product. The facility’s initial capacity was reported to be some 10 gigawatt-hours, though it could “eventually” be responsible for 20% of Tesla’s battery production in the region, which already features a Megapack facility in Lathrop, California with 40 gigawatts of capacity.

That other facility, Iola Hughes, head of research at Rho Motion, told me, “is entirely reliant on CATL cells.”

“CATL does not have LFP production outside of China, so it leaves [Tesla] in a position of either having to pay this higher tariff level, which would cut into Tesla’s energy storage margin, or potentially considering using another player,” Hughes said.

This would not be the first time that Tesla’s relationship with China tripped it up. Some Tesla Model 3s were briefly ineligible for the full electric vehicle tax credit under the Inflation Reduction Act, likely due foreign content in their battery. (All Model 3s are now eligible for the full credit.)

The tariffs on China come on top of a previously scheduled tariff increase on lithium storage batteries. Those lithium-storage-specific tariff rates are set to jump to 25% from 7.5% in 2026, thanks to increases in tariffs on a range of Chinese goods put in place by the Biden administration in 2024. While other tariff hikes were immediate, the battery tariffs were set to go into place in 2026.

“The reason that exemption was put in place was because the chemistry of choice for storage is LFP, and the LFP supply chain is almost entirely concentrated in China,” Hughes told me. “Last year, 99% of LFP sales produced were made in China.”

Under the maximum possible tariff scenario — where all the current Trump tariffs stay in place, the battery tariffs go into effect, and Trump-threatened tariffs for buyers of Venezuelan oil (China bought 55% of Venezuela’s oil exports last year) become reality — tariffs on lithium batteries could approach 200%.

Across the storage industry, “we saw quite a big pre-buy” in late 2024 and early this year, Hughes said. “People were essentially stockpiling cells and systems to get ahead of the tariffs, because there was some anticipation these would come.” But the effects can only be delayed so long. “Towards the end of 2025 is when we expect to see a bigger impact,” Hughes said.

Blue

You’re out of free articles.

Subscribe to access Heatmap’s expert analysis of energy, climate change, and sustainability, including coverage of our regular survey research. Save $57 on an annual subscription, just $156 $99/year.
To continue reading
Create a free account or sign in to unlock more free articles.
or
Please enter an email address
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Podcast

Starting a Giant Online Data Platform Is the Easy Part

Rob talks with climate and data expert Hannah Ritchie about her new platform, U.S. Energy Data.

Power lines.
Heatmap Illustration/Getty Images

America has some of the world’s best data about its own internal energy, industrial economy, and carbon emissions. That’s thanks to a federal agency called the U.S. Energy Information Administration, which painstakingly collects and updates the data every week.

But EIA data can be hard to access — and even harder to share and understand. A new project aims to change that. U.S. Energy Data takes federal energy data and repackages it, helping amateurs and experts understand the power grid, liquid fuels, and more. It is now the easiest way to make and share charts with federal energy data.

Keep reading...Show less
Blue
Energy

AI Heavyweights Team Up to Promote Demand Flexibility

Google, Nvidia, and Emerald AI are founding members.

A data center.
Heatmap Illustration/Getty Images

Nvidia, Google, and data center software startup Emerald AI are teaming up to lead the AI Energy Management Alliance, a trade group dedicated to promoting flexible load for AI data centers, the organizations announced on Wednesday.

“There are a lot of AI trade associations, data center trade associations, energy trade associations. This is the only one that is laser focused on flexible AI data centers,” Varun Sivaram, founder and chief executive of Emerald AI, told reporters in a briefing earlier in the week.

Keep reading...Show less
Green
Power lines.
Heatmap Illustration/Getty Images

This transcript has been automatically generated.

Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, YouTube, or wherever you get your podcasts.

Keep reading...Show less
Blue