Tesla's Most Valuable Business May Not Have Wheels. It Nearly Sold Out 2027.

Last Wednesday, Tesla reported a quarter that most of Wall Street read as a car story. Revenue was $28.05 billion, flat from a year earlier. Operating margin was 2.6%, down from 5.8%.¹ Automotive revenue fell 3% to $20.56 billion, and the shares fell more than 3% after hours.²

Then, on the call, Elon Musk said something about a different business. "Energy demand is very strong," he told analysts. "We're actually almost sold out of all Megapacks for 2027, and we're ramping production as quickly as possible to meet demand." His chief financial officer, Vaibhav Taneja, went further: "the business is witnessing extreme demand from data centers, and we are doing our best to increase production."³

Sold out a year in advance is not a phrase you hear from a car company. It is a phrase you hear from a supplier whose customers are lining up. And the customer in this case is not a driver. It is the electric grid.

Sold out a year in advance is not a phrase you hear from a car company.

The business inside the business

Tesla's annual report, signed January 28 and filed with the SEC the next day, puts a number on it. Energy generation and storage revenue was $12.77 billion in 2025, up 27% from $10.09 billion in 2024, which was itself up 67% from $6.04 billion in 2023. Over the same two years total revenue went from $96.8 billion to $94.8 billion, and automotive revenue fell from $82.4 billion to $69.5 billion.⁴ The car business shrank. The battery business doubled.

It is also a better business. Energy gross margin was 29.8% in 2025, up from 26.2% the year before, helped by lower raw-material and manufacturing costs, including the ramp of its Shanghai Megafactory, partly offset by tariffs, and Tesla deployed 46.7 gigawatt-hours of storage in the year.⁴ The filing describes Megapack as built for "commercial, industrial, utility and energy generation customers," then adds a line that would have looked odd in a car company's report a few years ago: "As AI infrastructure drives rapid load growth, Megapack helps to, among other things, increase utilization of existing generation and transmission capacity."⁴

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The third quarter looked worse on the surface and better underneath. Energy revenue fell 16% to $2.88 billion, which Tesla partly attributed to tariff-related customer refunds. But deployments rose 10% to 13.7 gigawatt-hours and gross margin jumped to 33% from 20% in the prior quarter, even as gross profit slipped to $954 million from $1.07 billion.¹ The company's deck listed its highest-ever order rate and backlog for storage.⁵

A factory built in sixteen months

The supply side is racing to catch up. On August 6, Tesla said its next-generation unit, Megapack 3, was "officially rolling off the line at our newest Megafactory in Brookshire, Texas," a plant that went "from groundbreaking to operation in just 16 months." The factory is planned for 50 gigawatt-hours a year, dedicated to that product. Each unit holds about 5 megawatt-hours, and four of them with a transformer and switchgear form a 20 megawatt-hour block. Tesla says Megapack 3 cuts installation time by 23% and construction cost by up to 40%.⁶

With the plants in Lathrop, California and Shanghai, that takes Tesla's storage capacity to roughly 110 gigawatt-hours a year.⁵ In the third quarter the company also started shipping Megapacks built with its own LFP cells, and Taneja said the tariff refund money "is being reinvested to expand production capacity in the US," without tying it to storage.³

The grid is the customer

The demand side explains why a whole year can sell out. The Energy Information Administration expects U.S. power use to reach a record 4,288 billion kilowatt-hours this year and 4,356 billion next year, after a record 4,195 billion in 2025, with commercial demand, the category that includes data centers, setting a record of its own.⁷ Developers planned 24 gigawatts of new battery storage for 2026, up from a record 15 gigawatts in 2025, and more than half of it, 12.9 gigawatts, is in Texas.⁸

Data centers are now a battery customer in their own right. About 10.3 gigawatts of storage came online in the first half of 2026, up more than 23% from a year earlier, and data centers accounted for roughly 75% of the behind-the-meter installations. The Solar Energy Industries Association expects data center demand for on-site storage to grow from about 5 gigawatt-hours this year to 24.4 gigawatt-hours by 2030. Google agreed in February to buy a 30 gigawatt-hour system from Form Energy.⁹

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Tesla's own order book shows the same shift. On October 8, Taiwan's Apollo Power signed for 260 Megapack units, roughly one gigawatt-hour, with deliveries staged through the end of 2027, and said the order supports its push into energy services for AI data centers.¹⁰

What a sold-out year means

When a product is sold out a year ahead, the seller sets more of the terms. Taneja said he expects the data center demand to bring "improvements in ASP and further improvements in margins," and Musk said he expects margins on the business to "increase meaningfully."⁵ That is the opposite of the car side, where Tesla said "battery availability continued to be the limiting factor in increasing auto volumes in the quarter."¹ The same cells that constrain the cars are being pulled toward the grid, where they earn a higher margin.

The money does not stop at Tesla. A 20 megawatt-hour block ships with a transformer and switchgear. A 50 gigawatt-hour factory needs cells, and a sold-out year needs more of them. Every site needs land, an interconnection, civil work and the companies that build and run it. The battery maker gets the headline. The supply chain around it gets the orders.

There are honest caveats. Energy revenue fell 16% in the quarter, and deployments came in below what analysts expected.¹ The margin jump came primarily from one-time tariff refunds and warranty adjustments, not from pricing.⁵ Tesla's own filing warns that Megapack deployments "can vary meaningfully quarter to quarter."⁴ And the stock fell after the call, so the market has not yet decided that the batteries matter more than the cars.²

But the numbers in the filings are hard to argue with. A business that did $6 billion in 2023 did $12.8 billion in 2025.⁴ Its newest factory took sixteen months to build and is planned for 50 gigawatt-hours a year.⁶ Its customers are utilities and data centers, the two buyers with the least ability to wait. And the chief executive just said next year is nearly gone. Investors have spent years valuing Tesla on cars and robots. The business that sells out may turn out to be the one that matters most.