Despite a wide 52-week range of about $150 to $300 per share, Tesla (TSLA -3.93%) is approximately flat over the last year, making it the worst-performing stock in the “Magnificent Seven“.
Demand for electric vehicles (EV) has fallen, while supply has grown. Tesla is in a price war with competitors in the important Chinese market, pushing its profit margins lower. But one Wall Street analyst still sees growth ahead for the company, just not necessarily with Tesla’s EV offerings.
RBC analyst Tom Narayan think Tesla’s battery storage Megapack business could be worth “substantially more” than its car business. That has led him to rate Tesla stock a buy with a price target of $297 per share. That would represent a gain of 58% from where it trades as of this writing.
The renewable energy solution
The growth of renewable energy solutions to combat climate change has run into obstacles. Solar and wind solutions can’t generate energy consistently or for long enough stretches at a time. Tesla CEO Elon Musk thinks Megapacks — utility-scale battery storage packs — are the solution, especially as more EVs on the roads increase the need for electricity generation.
Tesla’s energy generation and storage business segment accounted for about 6% of total revenue in 2023 with sales of $6 billion. But Narayan calculates that by 2040, if Tesla has even just a 15% share of a potential $600 billion battery storage market, sales from this business could reach $90 billion. That would almost match Tesla’s total revenue last year.
Based on those estimates, the energy generation and storage business is worth $120 billion to Tesla in 2024 dollars. That’s over 20% of Tesla’s current market cap for a segment that isn’t yet priced into the company’s valuation. RBC also feels that’s a conservative estimate considering Tesla’s cost advantages could allow it to take outsized market share. While the introduction of a lower priced EV might be the next major catalyst for Tesla stock, its energy business could be the longer-term value driver for an investor buying shares today.
