Tesla Inc. (NASDAQ:TSLA) CEO Elon Musk said the company’s Megapack battery storage systems are nearly sold out through 2027, highlighting surging demand for its energy business as Tesla races to expand production and capitalize on improving profitability.

Tesla’s Energy Margins Surge Amid Strong Demand

"Energy demand is very strong. We’re actually almost sold out of all Megapacks for 2027, and we’re ramping production as quickly as possible to meet demand," Musk said during Wednesday’s third-quarter earnings call. "We also expect gross margins on that to increase meaningfully."

Tesla’s energy generation and storage business, its highest-margin major division, recorded a 33.1% gross margin, up from 20.4% in the previous quarter. The company deployed 13.7 gigawatt-hours of energy storage, marking its second-best quarterly performance.

Chief Financial Officer Vaibhav Taneja attributed much of the margin improvement to tariff refunds and warranty adjustments involving battery suppliers. He also highlighted strong data-center demand and projected improvements in selling prices as production expands.

However, energy revenue fell 16% year over year to $2.88 billion, highlighting fluctuations in project deliveries despite the expanding order backlog. Tesla also reported its highest-ever energy storage order rate.

Tesla Expands Megapack Production Across Multiple Factories

Tesla recently began producing Megapack 3 batteries at its Brookshire, Texas, facility, which has a designed annual capacity of 50 gigawatt-hours.

The company also operates Megafactories in California and Shanghai, supporting global demand from utilities, renewable-energy developers and data centers.

Tesla previously introduced Megapack 3 and Megablock, promising faster installation and lower construction costs.

Data Center Boom Strengthens Energy Storage Outlook

Reuters previously reported that Tesla’s energy storage division was becoming an increasingly important profit driver as automotive margins faced pressure from competition and declining regulatory credits.

Meanwhile, the company secured an agreement with NatPower covering 25 gigawatt-hours of battery storage projects across Italy and Britain, supporting its international expansion.

Despite the strong backlog, Tesla must expand manufacturing capacity to meet demand while sustaining margins beyond temporary accounting benefits.

Price Action: TSLA shares fell 5.46% to $365.38 during pre-market trading on Thursday.

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