Zinger Key Points
- Tesla has received the majority of its revenue from automotive-related activities for years.
- Investors have become excited about the company's potential in the clean energy sector, outside of automotive.
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One of the most famous short sellers of Tesla Inc TSLA is sharing new criticism of what could be a new growth area for the electric vehicle giant.
What Happened: Tesla has dominated the electric vehicle market for year and also engaged in new lines of potential growth for the business, including solar roofs, clean energy solutions and energy storage products.
Short seller Jim Chanos, who posts on Twitter as @WallStCynic, is throwing caution to Tesla fans getting overly excited about the future of Tesla Megapacks, the company’s energy storage product.
“It’s come to my attention that the $TSLA faithful are beginning a new bull narrative (FSD and robots are so 2021-22), based on ‘Megapack’ utility-scale battery storage,” Chanos tweeted Wednesday while sharing an article from Torque News.
The article highlights “the astonishing economics of the Tesla Megapack” and draws on the economics of the clean energy initiative and potential of gross margins of 50%.
“The $TSLA bulls believe that demand for its Megapacks is 40 GW, and they are ‘sold out’ for years,” Chanos added.
Chanos said 1 GW of battery storage was installed in the United States in 2020 and the market is expected to hit 7.5 GW by 2025, or around a $5-billion market.
The short seller and founder of Kynikos Associates said Tesla is not the only company selling storage batteries.
“LG Energy, CATL, Hanwa and others are all offering these products.”
Chanos brushes aside the potential of 50% gross margins by saying LG Energy has gross margins of 16% and Tesla Energy Solutions had gross margins of 9% in the most recently reported third quarter.
“So $TSLA Megapacks will be a good (and logical) product line extension, but will in no way offset EV margin degradation over the next few years. Bring back the robots!”
Related Link: Tesla's Former Head Of Energy Built Company To Compete Against Powerwall
Why It’s Important: Tesla recently cut prices on several models in the United States and other regions around the world, a move that could impact margins.
The company has counted on automotive revenue as the key to its financials. Over the years, investors and fans of the company have gotten excited about clean energy initiatives outside of automobiles that could help diversify the company as it faces sharp competition in the electric vehicle market from EV players and traditional automakers.
In November, Benzinga reported on Tesla solar projects that were being cancelled, a potential sign that the solar division of the company could be under pressure.
While the Megapacks could be a future growth item for Tesla, it may not be as big as some estimates are calling for in terms of market size, revenue and margins.
Chanos is short Tesla shares so his comments come with a bias, but investors should consider the size of the energy storage market.
Tesla will report fourth-quarter financial results after market close on Jan. 25, which could provide a look at how the energy storage and solar sectors of the company performed.
TSLA Price Action: Tesla shares were down 2% to $128.78 on Wednesday versus a 52-week price range of $101.81 to $384.29. Shares of Tesla are down 63% over the last year.
Read Next: Why Cathie Wood Says Tesla Can Afford To Drop Prices With Limited Margin Impact
Benzinga file photo of Jim Chanos by Dustin Blitchok.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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