AS Tesla, Inc.‘S TSLA As the core EV business faces challenges, sell-side analysts are shifting their focus to the company’s ancillary initiatives. Thursday, an analyst from RBC Capital Markets highlighted a particular segment that could potentially surpass Tesla’s automotive business.
What happened: Following a “Battery Storage Facility Tour,” RBC analyst Tom Narayan highlighted the potential of Tesla’s Megapack utility-type battery storage business. He noted: “Tesla’s Megapack utility-grade battery storage business could be worth substantially more than its standalone automotive business.”
According to the analyst, Tesla expects a need for 2 Terawatt-hours of annual large-scale battery storage by 2040. He estimated the annual revenue of the battery storage industry at $600 billion, with Tesla’s specific storage revenue expected to $90 billion, assuming a 15% market share.
“Applying a 15x freight EBITDA multiple gives an EV of $345 billion for Tesla’s Megapack business, and discounting this from 2040 to 2024 gives a valuation of $120 billion,” he said.
Despite these promising prospects for the battery storage business, Narayan reiterated that autonomy remains central to Tesla’s investment case. He anticipates the launch of a new affordable model, expected to begin production in the second half of 2024 or 2025, to serve as the next catalyst for Tesla shares.
Narayan maintained an Outperform rating and a $297 price target on Tesla shares.
See also: Everything you need to know about Tesla stock
Because it is important: Tesla’s auto business has faced significant pressures over the past year, with subdued demand for electric vehicles and consumer caution amid economic uncertainty. Aggressive price cuts by Tesla in an attempt to gain market share further complicate matters.
Piper Sandler analyst Alexander Potter highlighted the growing importance of battery revenues to Tesla’s overall profitability. Tesla’s market share in global stationary battery deployments is expected to increase through 2024, led by contributions from the Lathrop, California Megafactory.
Potter predicts that by 2030, Tesla’s energy business could generate ten times the revenue expected from Cybertrucks. He suggested that more than half of Tesla’s net profit growth between 2023 and 2025 could come from sales of stationary batteries.
Tesla closed Thursday’s session down 0.08% at $201.88, according to Benzinga Pro data.
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