Tesla’s battery sales shine as its core business stumbles

Tesla is off to something of a tough start in 2025. Earlier this week the automaker reported a 71% drop in profits and a 9% decrease in revenue—its worst Q1 in years.

But Tesla did have one bright spot in its earnings report: Its energy generation and storage business.

Tesla’s battery business is up 67% from last year, having reached $2.73 billion in revenue and 10.4 GWh of deployments during the quarter, thanks to its popular Megapack and Powerwall battery systems. 

Although battery sales bolstered the company’s earnings, the Trump adminstration’s recent tariffs pose a serious threat to that side of the business. Tesla CEO Elon Musk has publicly said he’ll advocate against Trump’s higher tariffs, but it remains to be seen if Trump will take his advice. Chinese-made lithium-ion batteries now face tariffs of 145%, causing supply constraints and price increases that are poised to disrupt Tesla’s fastest-growing source of revenue.

Tesla CFO Vaibhav Taneja cautioned that the company’s energy business is expecting to face headwinds in the year ahead due to the U.S.-China trade war. 

"The impact of tariffs on the energy business will be outsized since we source LFP battery cells from China," said Taneja on the company’s earnings call this Tuesday. 

Like most of the U.S. solar industry, Tesla relies on battery imports from China, which controls 80% of lithium chemical production globally. The company launched its Megapack factory in Shanghai earlier this year, which was expected to double its global production capacity and further boost profitability. The Trump tariffs will likely affect those plans, though the expansion should help Tesla remain competitive outside of the U.S.

According to Taneja, Tesla is now looking to pursue domestic production of lithium-iron phosphate batteries and secure an “additional supply chain from non-China-based suppliers,” both of which “will take time." 

While Tesla has announced plans for a new manufacturing facility near Houston, Texas, it’s unclear how much progress the company has made in ramping up domestic battery production. In the meantime, tariffs are expected to add to the cost of production and ultimately hike the prices of Tesla’s Powerwall and Megapack products.

On the earnings call, Musk addressed the tariff situation, commenting, “I’ve been on the record many times saying lower tariffs are a good idea for prosperity. I’ll continue to advocate for lower tariffs rather than higher tariffs. That’s all I can do.”

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Along with tariff-induced price hikes, Tesla acknowledged that the “changing political sentiment” could have a “meaningful impact on demand for our products.” In response, Musk announced his plans to spend less time in Washington and refocus his efforts on Tesla.

“Starting probably next month, in May, my time allocation to DOGE will drop significantly,” Musk said. 

Musk’s controversial role in the Trump administration has prompted public backlash, with anti-DOGE protests taking place across the U.S., a growing number of Tesla owners selling their cars, and a surge in vandalism targeting Tesla vehicles and dealerships. 

Trade policy uncertainty, global supply chain disruptions, and rising competition are posing signifcant challenges for Tesla, and the damage to the Tesla brand caused by Musk’s recent behavior is contributing to the company’s growing list of problems. Nevertheless, Musk assured investors he remains confident about the company’s future. EnergySage reached out to Tesla for comment but did not immediately hear back.