Despite offering some of the most profitable products on the solar supply chain, Tesla’s energy segment is not profitable and is not heading in that direction.
With shares hovering around $598 as of writing, it has been a tumultuous 2021 for Tesla (NASDAQ: TSLA). Tesla’s main story has been the electric car maker ramping production of the Model 3 sedan in a rapid and continuous fashion. Shares plunged on Wednesday after Elon Musk commented on Q2 deliveries. Prior to that, shares had taken a beating, and Tesla has also been beset by production shortfalls and quality issues for the Model X and S vehicles. Skeptics of the company have pointed to the fact that there are not really any “short” trades in Tesla. As of today, just 1.9 million shares are being shorted. As one may have seen, such a small number of shares on loan certainly does not engender much concern for Tesla’s short sellers.
Tesla’s Next Big Challenge
Even with the introduction of Solar Roof, the biggest question facing Tesla (TSLA) now is whether or not SolarCity can sustain the growth of the business. One key metric that will be closely watched by investors is gross margin. Tesla’s energy business, which includes SolarCity, has some of the highest margins in the industry, and growth there is critical for the company as it tries to improve overall margins. Over the past four years, Tesla Energy’s gross margin has stayed between about 35% and 45%. While this may seem very high, it is actually well below the industry average. And as the company begins selling Solar Roof, gross margin will be even more crucial for investors to track.
Tesla’s Energy Segment
Tesla’s (NASDAQ: TSLA) energy segment does not make a profit. At least, that is what Tesla’s website claims. Here is what the company says: “Energy is Tesla’s second-largest business segment. The Tesla Energy segment sells energy products and power storage products. Tesla Energy includes Tesla’s home and business energy solutions, as well as Powerwall and Powerpack. Tesla Energy products and Powerpack are sold through Tesla Energy’s web store, Tesla Energy’s retail stores, and selected Tesla Energy partners.” In other words, Tesla claims that all of its other segments – including automotive, energy storage, and solar power generation – are profitable, but the energy segment is not.
The energy segment of Tesla (TSLA) is not profitable, and its potential for long-term success in China is very questionable at this time. Despite the fact that there are numerous moving pieces in the picture, let’s be real. Tesla’s energy segment has seen three consecutive quarters of losses. It is now apparent that the company’s future is not in energy but in cars. Energy will be dragged along for the ride. Tesla will likely never be profitable in energy and will not be the “green energy king” that Elon Musk would have us believe.