Tesla’s energy storage business saved a bad earnings report from being a terrible one.

Last year, the company’s income fell 45% compared to 2024driven in large part by declining sales of its electric vehicles. Investors expected a decline in sales, but Tesla still beat Wall Street revenue and earnings estimates thanks to its energy storage business.

Tesla has deployed a record 46.7 gigawatt-hours of energy storage products by 2025, a 48% increase from last year, according to the company’s official filing.

Large batteries like the Megapack and Powerwall, along with solar installations, now drive nearly a quarter of Tesla’s gross revenue. In the last quarter alone, Megapack contributed $1.1 billion to the storage business of $3.8 billion in gross revenue for the entire year. Energy storage and generation revenues rose 26.5% to $12.8 billion.

These batteries and solar panels are also very profitable, with a gross margin of 29.8%, almost double what Tesla earns from selling cars and trucks.

Storage is likely to play a large role in the company’s near future, too.

Large energy storage projects, such as those installed for utilities or data centers, tend to be milestone based, and revenue from the projects is recognized when certain milestones are achieved. In its 10-K filing with the SEC, Tesla said it expects to recognize $4.96 billion this year in deferred revenue from projects already underway. That’s more than double what the company recognized in deferred revenue from storage projects by 2025.

Some obstacles lie ahead, however.

The One Big Beautiful Bill Act (OBBBA) removes tax credits for residential energy storage systems such as Powerwall, although commercial tax credits for Megapack and Megablock products will continue until mid-2030. OBBBA’s tariffs and provisions also threaten to increase battery cell prices, the company said. Sales are up because volumes are up, but the average selling price of a Megapack is down, suggesting increased competition in the energy storage market.

Overall though, Tesla remains optimistic about the storage business.

“Despite these challenges, as AI infrastructure drives rapid load growth, we see opportunities for our energy storage products to stabilize the grid, transfer energy when it’s needed and provide additional power capacity,” the company said in its earnings report.