Tesla’s era as the market’s can’t-miss EV growth engine has passed, cracking under tougher competition and softer demand. With Chinese rivals now setting the pace globally, Tesla is expected to fall further behind BYD in overall sales again this year.

But while CEO Elon Musk keeps the stock aloft with robotaxi bloviating and Optimus cosplay, the company’s energy arm is doing the one thing Wall Street loves, and hype can’t fake: booking revenue. Inside Tesla’s sprawling identity crisis, grid-scale batteries and, potentially, solar are the closest thing it now has to a can’t-miss bet.

“It's their best business,” said Tesla investor and frequent Musk critic Ross Gerber, CEO of Santa Monica, California-based Gerber Kawasaki. “There's so much demand for energy and the simplest supply solution is solar and battery systems, which have the least cost. Deployment opportunities are just massive right now for Tesla.”

He’s not wrong. For a decade, Tesla has packaged and sold battery cells in Powerwall packs for residential solar installations and much larger Megapacks for utility-scale power storage. In 2025, Tesla’s battery business booked a record $12.8 billion of revenue, up 27%, while its annual auto revenues dropped 10% to $69.5 billion. Tesla is still overwhelmingly a car company by revenue, but the direction of travel is what matters: energy is growing, autos are shrinking, and the macro backdrop suggests that the gap can widen.

And now, with data centers straining utilities’ capacity and pushing residential electricity prices higher, Tesla is also looking to return to solar-panel manufacturing after earlier ambitions, including the solar roof, failed to meet expectations.

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“The solar opportunity is underestimated,” Musk said on the company’s results call in January. “We think the best way to add significant capability to the grid is solar and batteries on Earth and solar in space. That's why we are going to work towards getting 100 gigawatts a year of solar cell production, integrating across the entire supply chain, from raw materials all the way to finished solar panels.”

Amid the billionaire oligarch’s push to evolve Tesla into an AI and robotics company, its car business is fading, relying mainly on demand for its core Model Y and Model 3 EVs. The Cybertruck has struggled to find broad traction, and Musk said in January the company would eliminate the Model X SUV and Model S sedan—two vehicles that helped define Tesla’s early brand and profitability narrative. Tesla plans to bring out a production version of the company’s Semi and quirky Cybercab later this year, but both face headwinds and neither is likely to generate sufficient sales to reverse the global decline of its car business.

“Build as many renewables as you can get permits for, but batteries can be built anywhere” Jigar Shah

“Build as many renewables as you can get permits for, but batteries can be built anywhere”

Batteries and solar are different. They’re direct descendants of Musk’s 2006 manifesto about creating a company to “expedite the move from a mine-and-burn hydrocarbon economy” – a more durable thesis than the company’s newer bets on autonomy and humanoid robots. The energy business is rooted in present-day constraints: grid reliability, growing AI demand and energy costs.

Setting aside space-based aspirations, Tesla’s terrestrial battery and solar plans look even more compelling as geopolitical tensions rattle the energy market. The Iran war has shaken global supply expectations, spiking oil prices above $100 a barrel on March 9.

Battery storage and solar installations are being added to the U.S. grid at a record pace. The Solar Energy Industries Association says at least 57-gigawatt-hours of capacity was installed by the end of 2025, up 29% annually. It expects total installed battery storage capacity to hit 70 GWh by the end of this year – enough to supply power for more than 50 million homes. The U.S. added 43 gigawatts of solar power in 2025, the top source of new energy capacity on the grid for a fifth consecutive year, according to SEIA.

Demand for battery storage is growing across the entire grid, not just for renewable energy, to stabilize power delivery, said Jigar Shah, cofounder of cleantech adviser Multiplier and the director of the Energy Department’s Loan Programs Office for the Biden administration. Advances in storage allow for much more efficient use of energy generated by all power sources – nuclear, gas, coal, solar, wind and hydro – and avoid strains on the grid created during demand peaks.

“Build as many renewables as you can get permits for, but batteries can be built anywhere,” Shah said. “Build them on utility substations, behind the meter at Walmart stores, at churches and schools, all sorts of stuff.”

Tesla’s early move into battery storage, leveraging the production of cells used in its EVs, gave it an early lead in the U.S. market, first with residential solar storage and later with utilities. That business has expanded steadily over the past decade and “could be worth $90 billion,” Bank of America equity research analyst Alexander Perry said in a report this month.

Ben Kallo, an equity analyst with Baird, estimates Tesla’s energy unit revenue will grow about 17% this year, driven mainly by Megapack sales. “This is the strongest of Tesla’s more mature businesses and is driven by many things, but the need for power and upgrades to the transmission grid are two of the high-level factors.”

Currently, the company can produce a total of 80 gigawatt-hours of Megapacks at its Lathrop, California, and Shanghai factories–40GWh at each, Iola Hughes, head of research for London-based Benchmark Mineral Intelligence, told Forbes.

“It plans to bring online a third facility in Houston with an additional 50GWh by 2028, with potential expansion also an option at existing facilities,” she said. As a result, the business unit has “plenty of room to grow.”

To build up its U.S. battery supply base, Tesla in January began operating a lithium refinery near Corpus Christi, Texas, the largest in America, Musk tweeted. Yet the company still relies on Chinese partners for components used in the lithium iron phosphate, LFP, cells that go into its Megapacks. So far, higher U.S. tariffs for Chinese batteries and materials haven’t materially blunted demand for Tesla’s packs.

Early this year, the company also began selling its new TSP-415 and TSP-420 solar panels, apparently manufactured at its Buffalo, New York, plant. That’s a surprise, as the factory, owned by the state of New York and leased to Tesla for $1 a year, has been underutilized since its early days as SolarCity’s panel factory. Tesla acquired SolarCity in a controversial 2016 deal, rescuing a Musk-backed company that critics argued was headed toward insolvency.

“The energy business is not only growing, but it's profitable for them, with decent margins, and they're expanding. That business alone is worth a ton – $50 billion to $100 billion.” Ross Gerber

“The energy business is not only growing, but it's profitable for them, with decent margins, and they're expanding. That business alone is worth a ton – $50 billion to $100 billion.”

Even so, Buffalo is nowhere near the 100 GW production capacity Musk is targeting with Tesla’s renewed solar push. Colby Hastings, senior director of Tesla Energy, has said the company’s goal is to scale up Buffalo to make 300 MW of panel assembly capacity this year.

While Tesla could further expand Buffalo to make more panels, it’s likely looking to add a new factory elsewhere, said Shah. “I don't know that they've chosen a location yet. There are seven or eight locations I evaluated when I was at the Department of Energy, where somebody went 90% of the way and then abandoned the project, so they could pick up one of those,” he said.

“On solar, we think Tesla is committed to bringing U.S. production, but we don’t think they’ll start construction of a factory until next year,” Baird’s Kallo said. In addition to Buffalo, “they could build a greenfield factory. My hunch is the 100GW that Musk discussed on the call likely will be built in stages – for example, four 25GW projects, so we think this could take several years.”

Tesla didn’t respond to a request for comment.

Gerber isn’t convinced Musk’s solar aspirations are attainable on the timeline implied by his rhetoric, and they certainly won’t come cheap. Still, he sees the strategic focus on energy as a no-brainer.

“The energy business is not only growing, but it's profitable for them, with decent margins, and they're expanding,” he said. “That business alone is worth a ton – $50 billion to $100 billion. It’s becoming a more and more important part of Tesla because sales are going down everywhere else.”

© Forbes