Baird highlights Tesla Energy’s hidden potential: “under the radar”

2024.08.16 3 min read

A recent note from Baird Equity Research analyst Ben Kallo has focused on an understated but rapidly growing part of Tesla’s business — Tesla Energy. As per the analyst, Tesla Energy’s contribution to the company’s overall valuation should not be underestimated.

In his note, Kallo noted that Tesla Energy is “one of the most under the radar aspects of the broader business.” The analyst also noted that Tesla Energy contributes about $41 per share to Tesla’s combined valuation.

“Its contribution to the company’s valuation should not be underestimated. Rapid growth in deployments and gross margins exceeding those of the Automotive business have begun shifting attention to this component of the company and raised the question of the Energy segment’s contribution to TSLA’s valuation,” Kallo noted.

The Baird analyst also discussed the impact of the Tesla Powerwall and the Megapack. The Powerwall is Tesla’s home battery storage solution that is also used in virtual power plant (VPP) systems, while the Megapack is a massive battery storage unit that’s designed for grid use.

Baird analyst Ben Kallo on @Tesla Energy: “Its contribution to the company’s valuation should not be under-estimated. Rapid growth in deployments and gross margins exceeding those of the Automotive business have begun shifting attention to this component of the company and raised…

— Sawyer Merritt (@SawyerMerritt) August 15, 2024

“Utility-scale has been viewed by many in the space as one of the brightest spots for renewables in recent past, and we agree. The headwinds of higher interest rates and high upfront costs for many renewable technologies have been more easily absorbed by large developers than individuals. We expect this to continue for the near-term as interest rates will likely remain elevated for the foreseeable future,” the Baird analyst noted.

Baird’s base estimates for Tesla Energy run through 2029, as noted in a MarketWatch report. Key assumptions from the firm include 25% gross margins, 12% EBIT margins, and interest/tax expenses proportionate to the Energy business’ percentage of total company revenue, Baird noted. Kallo, however, acknowledged that Baird’s assumption may be light on volume.

“TSLA’s Megapack factory in Lathrop, CA is expected to reach annual production capacity of 40 GWh by year-end 2024 with the Shanghai factory ramping in 2025. Our estimates assume a conservative ramp time and are likely biased to the upside on volume,” Kallo wrote.

Baird currently has an “Outperform” rating and $280 price target for Tesla stock.

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