Tesla’s energy storage business gets sucked into the company’s downward spiral

Key Points

Research suggests Tesla’s energy storage business, including Powerwall and Megapack, is facing recent challenges, with deployments declining for two consecutive quarters in 2025.
It seems likely that these challenges are linked to broader company issues, such as tariffs on Chinese goods and potential regulatory changes affecting tax credits.
The evidence leans toward a slowdown in growth, though the business showed significant expansion in 2024, with record deployments and revenue.

Recent Performance

Tesla’s energy storage business has seen a decline in deployments, with 9.6 GWh installed in Q2 2025, down from 10.4 GWh in Q1 2025 and a peak of 11 GWh in Q4 2024. This follows a strong 2024, where total deployments reached 31.4 GWh.

Contributing Factors

Tariffs on Chinese imports, particularly lithium iron phosphate (LFP) battery cells, are impacting costs, while potential changes to the Inflation Reduction Act could affect tax credits. Competition from emerging technologies like sodium batteries is also a factor.

Market Context

Despite a 57% year-over-year growth in the broader energy storage market in Q1 2025, Tesla’s growth rate has slowed, suggesting external pressures are affecting its performance.

Supporting URLs:

Detailed Analysis of Tesla’s Energy Storage Business Challenges as of July 3, 2025

This section provides a comprehensive examination of Tesla’s energy storage business, focusing on recent performance challenges and their alignment with broader company issues. The analysis is grounded in recent news reports, financial data, and market trends, ensuring a thorough understanding of the developments as of 02:10 AM PDT on Thursday, July 3, 2025.

Background and Context

Tesla’s energy storage business, encompassing products such as Powerwall for residential use and Megapack for utility-scale applications, has been a significant growth driver for the company. In 2024, the business achieved record deployments of 31.4 GWh and generated revenue exceeding $10 billion, marking a 67% year-over-year increase. This growth has been fueled by increasing demand for energy storage solutions, driven by renewable energy adoption and grid stabilisation needs. However, recent reports indicate a slowdown, with deployments declining for two consecutive quarters in 2025, suggesting that the business is facing challenges that may be linked to Tesla’s broader operational and market difficulties.

Recent economic trends, including trade tariffs, regulatory changes, and competitive pressures, have shaped the landscape for Tesla’s energy storage segment. The company’s overall performance, including declining vehicle sales and profit margins, may also be influencing investor and market perceptions of its energy storage business.

Recent Performance: Decline in Deployments

Recent data from Tesla’s Q2 2025 production and delivery report, as cited in TechCrunch and Yahoo Finance, indicates a decline in energy storage deployments for the second consecutive quarter. Specifically:

In Q2 2025, Tesla installed 9.6 GWh of energy storage, down 0.8 GWh from 10.4 GWh in Q1 2025.
This follows a peak of 11 GWh deployed in Q4 2024, with total 2024 deployments reaching 31.4 GWh, as reported by ESS-News on January 3, 2025.

This decline contrasts with the broader market, which grew by 57% year-over-year in Q1 2025, according to Wood Mackenzie data referenced in the TechCrunch article. The slowdown in Tesla’s deployments suggests that external factors and internal challenges are impacting its ability to maintain growth momentum.

The following table summarises Tesla’s energy storage deployment trends:

Metric	2023	2024	Q1 2025	Q2 2025
Energy Storage Deployment (GWh)	14.7	31.4	10.4	9.6
Year-over-Year Growth (%)	–	113%	154%	-8% (QoQ)

Note: QoQ (Quarter-over-Quarter) growth for Q2 2025 compared to Q1 2025.

Historical revenue growth also highlights the business’s past success:

Revenue grew from $2 billion in 2020 to $10.1 billion in 2024, as per SEC filings referenced in the TechCrunch article.
In Q1 2025, energy segment revenue was $2.7 billion, up 67% year-over-year, indicating strong financial performance earlier in the year, per the Nasdaq article from June 6, 2025.

Contributing Factors: External and Internal Challenges

Several factors are contributing to the recent challenges faced by Tesla’s energy storage business:

Tariffs on Chinese Goods: Tesla’s CFO, Vaibhav Taneja, stated in an April 24, 2025, interview with Energy-Storage. News that tariffs on Chinese imports would have an “outsized impact” on the energy storage business. This is due to Tesla’s reliance on lithium iron phosphate (LFP) battery cells sourced from China for its Megapack products. The company is commissioning equipment for local LFP battery cell manufacturing in the US, but currently, it can only service a fraction of its total installed capacity. Additionally, equipment for these factories likely needs to be imported from China, complicating mitigation efforts. The US market, Tesla’s largest by country, with Q1 2025 revenues from US sales at more than $10 billion compared to $4.3 billion from China and $4.7 billion from other international markets, is particularly affected.
Regulatory Changes: Potential changes to the Inflation Reduction Act, particularly restrictions on foreign entities of concern (FEOC), could impact tax credits for energy storage installations. Given that most battery minerals are refined or processed in China, these restrictions could increase costs or reduce incentives, affecting project economics. The TechCrunch article notes that a Trump-backed reconciliation bill may alter these credits, adding uncertainty.
Market Competition: Emerging technologies are challenging Tesla’s dominance in energy storage. Articles from CleanTechnica (March 31 and March 28, 2025) and Interesting Engineering (March 30, 2025) discuss the rise of sodium batteries and iron-sodium batteries, which are entering the commercial energy storage market. These alternatives offer potential cost-effective or longer-duration solutions, with some systems demonstrating over 700 cycles of durability, posing a threat to Tesla’s Megapack, which has been a dominant player in stationary storage.
Broader Company Issues: Tesla’s overall business is facing challenges, including declining vehicle sales, profit margins, and stock performance, as noted in various reports. The energy storage segment, while high-margin and fast-growing, is not immune to these pressures. The Nasdaq article from April 8, 2025, describes the energy unit as a “pillar of strength” amidst company-wide challenges, but the recent deployment declines suggest that external factors are amplifying internal difficulties.

Market Context and Industry Impacts

The broader energy storage market continues to expand, with a 57% year-over-year growth in Q1 2025, per Wood Mackenzie. However, Tesla’s slower growth rate indicates that it is not keeping pace, potentially due to the challenges mentioned above. Industry experts, as cited in Energy-Storage. News, note additional impacts:

Rosa van Reyk from GCube mentioned that some utility-scale projects close to a financial investment decision have been cancelled due to tariff-related cost increases.
Iola Hughes from Rho Motion suggested that the impact of tariffs on Chinese imports could be limited due to falling costs of lithium batteries, offering a counterpoint.
Ray Saka and Ken Dao from IHI Terrasun indicated that some projects would likely see delays, and moving to domestic sourcing, while challenging, is the lowest-risk option.

Tesla’s Shanghai Megafactory, with a current 20GWh annual production capacity planned to ramp to 40GWh, is positioned to “take care of our business outside the US,” as noted in the Energy-Storage news article, suggesting a strategy to balance exposure to US tariff risks by focusing on international markets.

Potential Influences and Uncertainties

Several factors may influence the future trajectory of Tesla’s energy storage business:

Mitigation Strategies: Tesla’s ability to ramp up domestic manufacturing and secure non-China-based supply chains will be critical. However, the timeline for these efforts, given the need for imported equipment, introduces uncertainty.
Regulatory Outcomes: The final form of any changes to the Inflation Reduction Act and their impact on tax credits will significantly affect project economics and deployment rates.
Competitive Dynamics: The pace at which sodium and iron-sodium batteries gain market share could determine Tesla’s ability to maintain its leadership position.
Market Volatility: Broader economic conditions, including interest rates and energy policy, could influence demand for energy storage solutions, affecting Tesla’s performance.

Comparative Analysis

The following table compares Tesla’s energy storage business performance and challenges with market trends:

Aspect	Tesla’s Energy Storage	Broader Market Context
Deployment Growth (Q1 2025)	10.4 GWh, down to 9.6 GWh in Q2 (decline)	57% year-over-year growth (Wood Mackenzie)
Revenue Growth (2024)	67% YoY to >$10 billion	–
Key Challenges	Tariffs, regulatory changes, competition	Industry resilience noted, but project cancellations reported
Strategic Response	Local manufacturing, Shanghai expansion	Industry moving to domestic sourcing, facing delays

Economic and Market Implications

The recent challenges facing Tesla’s energy storage business highlight the interconnectedness of its operations with broader company performance and external economic factors. The decline in deployments, while significant, does not negate the business’s past success and potential for recovery. However, the “downward spiral” suggested by the user’s statement is supported by the recent data, particularly the impact of tariffs and regulatory uncertainties. The business remains a key growth driver, but its ability to navigate these challenges will determine its long-term trajectory.

Conclusion

Based on the available data, Tesla’s energy storage business is facing notable challenges, with deployments declining for two consecutive quarters in 2025, aligning with broader company difficulties. Key factors include tariffs on Chinese goods, potential regulatory changes affecting tax credits, and competition from emerging technologies. While the business showed significant growth in 2024, recent performance suggests a slowdown, supporting the notion that it is being affected by Tesla’s overall challenges. However, with strategic adjustments and market opportunities, the business may overcome these hurdles, maintaining its position as a leader in the energy storage sector.

Supporting URLs:

• • ESS-News: Tesla smashes its records with a big increase in energy storage deployments in 2024