Tesla’s Significant Investment in China During Critical Times
On March 1, 2023, during Tesla’s Investor Day event, Elon Musk unveiled some astonishing figures: a planned energy storage capacity of 240 TWh, which is equivalent to about 10% of the world’s GDP in 2022 (approximately $10 trillion). Given that the total global electricity generation in 2022 was 29,031 TWh, this energy storage capacity would cover about three days of global electricity consumption.
On February 11, despite the chill in Shanghai’s Lingang New Area, the Tesla Shanghai Gigafactory was buzzing with activity. The unveiling was not a new Tesla vehicle but a massive white container, standing approximately 3 meters tall and weighing 38 tons—the Tesla Megapack, a large-scale commercial energy storage system. In simple terms, energy storage refers to the capability of storing electrical energy for later use, helping to balance energy supply and demand, enhance grid stability, and reduce production costs. It is often referred to as a crucial “power bank” in the new energy era.
This energy storage initiative is a vital component of Musk’s ambitious new energy plan. The launch of this storage device marks the official commencement of production at Tesla’s second Gigafactory in China and its first overseas energy storage facility. The factory spans an impressive 200,000 square meters, equivalent to about 30 standard football fields, with a total investment of 1.45 billion yuan. It includes a comprehensive production line encompassing welding, painting, and assembly. Annually, the factory is expected to produce around 10,000 Megapack systems, with an energy storage capacity of nearly 40 GWh, enough to meet the annual electricity needs of 13,000 homes or 40 medium-sized factories.
Musk, known for his efficiency, was astonished that this factory was built in just 9 months, three months faster than the Tesla Shanghai automotive Gigafactory, which also operated on an expedited timeline. In contrast, the Las Lomas storage facility in California took over two years to build. Behind the “Shanghai speed” lies a covert competition concerning efficiency, industrial chains, and global energy discourse.
Rewinding to April 28, 2024, Musk visited China again. During his 40-hour trip, one of the significant objectives was to accelerate the progress of the Shanghai energy storage project, which had just been signed in early April. By early May, Tesla received a “big gift”—a construction permit from the management committee of the Shanghai Free Trade Zone’s Lingang New Area. Min Zhiguang, the deputy director of the approval and review center, recalled that the project benefited from a “project service package” that streamlined tasks into a detailed checklist, transforming the interaction from “business waiting on government” to “government actively pursuing business.”
When the first excavator started work in Lingang on May 23, the Tesla team faced challenges not only from the rainy season, high temperatures, and typhoons but also from the task of constructing the world’s most complex energy storage production line as quickly as possible. However, with the support of the Shanghai government and the construction team from Shanghai Baoye Group, which had previously built Tesla’s first Shanghai Gigafactory, the factory’s construction progressed rapidly.
More crucial than the factory itself is the supporting industrial chain, which is one reason Musk chose Shanghai. Before construction began, leading battery material companies like CATL had already established production bases in Lingang and began supplying lithium iron phosphate (LFP) battery cells to Tesla starting in the first quarter of 2025, ensuring the core energy storage capability of the Megapack system. Additionally, the Tesla Shanghai energy storage factory is located just across a river from the automotive Gigafactory, with a high overlap in the supply chains of energy storage and electric vehicles, allowing for shared resources such as batteries, energy management systems, and structural components.
Thanks to these advantages, Tesla’s energy storage solutions have made an impressive entrance into the market. Data shows that the annual production capacity of 40 GWh from the Shanghai factory accounts for 36.4% of the new energy storage installations in China in 2024 (109.8 GWh), and represents 127% of Tesla’s global energy storage system installations (31.4 GWh). Tesla anticipates a year-over-year growth of at least 50% in its energy storage product installations by 2025. The first Megapack produced immediately crossed the ocean to an energy storage station in Victoria, Australia, a region known for its significant grid stability issues and one of the highest rates of energy storage penetration globally.
This move underscores Tesla’s ambition to leverage China as a pivot point to expand globally. Tesla’s Vice President Tao Lin shared with the media that the Shanghai energy storage factory is expected to become a crucial production and export hub, supplying not only the Chinese market but also exporting to 65 countries and regions worldwide. Musk has boldly claimed that by 2030, Tesla’s energy storage business will rival its automotive segment. Some even argue that electric vehicles are merely an appetizer in Musk’s quest for commercial dominance, while energy storage is the ultimate goal for Tesla.
In 2016, Tesla ventured into home energy storage with the acquisition of SolarCity for $2.6 billion. However, Musk faced backlash rather than applause at the press conference, as SolarCity was a California-based solar company founded in 2006, and its CEO was Musk’s cousin. Critics condemned the deal as a “self-dealing transaction,” while Wall Street analysts questioned the wisdom of merging with a financially troubled solar firm. Nonetheless, Musk was convinced that this merger would herald a new era, stating, “The world does not need another gasoline car company; it needs a sustainable energy company.” His vision was to integrate SolarCity’s solar technology and energy storage capabilities with Tesla’s battery manufacturing and electric vehicle ecosystem to create a closed-loop system encompassing generation, storage, and usage.
In 2017, Tesla officially changed its name from “Tesla Motors” to “Tesla Inc.” to shed the label of an auto manufacturer and cement its status as a sustainable energy giant. A pivotal moment occurred in Australia in March 2017 when the South Australian grid collapsed, causing losses of up to $82 million for the local electricity provider BHP. Amidst the chaos, Musk offered to deliver a 100 MWh energy storage system within 100 days—or it would be free. This tweet, which received over 120,000 retweets, thrust Tesla’s energy storage into the global spotlight. Ultimately, Tesla completed the construction of the world’s largest lithium battery storage system in Australia in just 55 days, alleviating the local electricity crisis and serving as a global advertisement for Tesla’s energy storage technology.
By the end of 2020, Tesla’s Powerwall home storage product had achieved a remarkable 73% market share in the U.S., while Tesla’s global energy storage market share surged to over 30%, establishing it as a clear leader. However, just as success seemed assured, a sudden turn of events occurred. In September 2022, a Tesla Megapack storage unit caught fire at the Elk Horn substation in Monterey County, California. That year, a Chinese company, Sungrow, surpassed Tesla for the first time with a 16% global market share, claiming the top spot among global energy storage system integrators. Sungrow, founded in 1997, initially gained recognition for its photovoltaic inverters before entering the energy storage market in 2006 and formally partnering with Samsung in 2014 to explore energy storage.
This competitive turnaround was attributed to three key factors: a deep technical foundation, superior cost control compared to Western counterparts, and a localized service network established in emerging markets like Saudi Arabia. For comparison, Tesla’s energy storage system had a gross margin of 25% at a price of 2.45 yuan/Wh, while Sungrow achieved a remarkable 40% gross margin at just 1.0 yuan per unit. In the Middle East, Sungrow successfully bid on several major projects, including a 7.8 GWh energy storage project in Saudi Arabia, setting a new global record.
Faced with losing market share, Tesla was compelled to act. In March 2023, Musk announced the launch of the “Secret Master Plan” Chapter Three during the investor conference, revealing the establishment of the world’s first California energy storage superfactory. Additionally, Tesla confirmed the location of its first overseas energy storage superfactory in Shanghai. By June of the same year, the global installation of Tesla’s Powerwall home storage product rapidly expanded to 500,000 units, while the commercial Megapack evolved into its sixth generation, enhancing capacity and efficiency while reducing costs and prices.
After these strategic moves, Tesla reclaimed the title of the world’s leading energy storage system integrator in 2023, although its global market share remains below its peak, standing at only 15%. The company faces stiffer competition, primarily from Chinese businesses. On July 18, 2024, Tesla Megapack secured a record-breaking contract worth over $3 billion with U.S. renewable energy company Intersect Power for a 15.3 GWh energy storage system. However, in January 2025, CATL stole the spotlight by being selected as the preferred battery storage system supplier for the largest solar and battery storage project globally—the RTC project in the UAE, with a total storage capacity of 19 GWh and a total investment exceeding $6 billion. BYD also made headlines in February by signing a deal with Saudi Electricity Company for the world’s largest grid-side energy storage project, boasting a capacity of 12.5 GWh.
According to the S&P Global report on global energy storage system integrators in 2024, long-time rival Sungrow has secured the top position in both cumulative installed capacity and cumulative order volume, winning several large contracts in markets such as the Middle East, the UK, and Australia. This highlights that the global energy storage competition mirrors that of the electric vehicle market, characterized by intense rivalry between U.S. and Chinese companies, with the same key players at the table.
On March 10, Tesla experienced its largest single-day drop since September 2020, with its stock price halving from its historical peak, dropping 15.43% in a single day and resulting in a loss of approximately $130.3 billion in market value. Since February, Musk’s drastic layoffs in the U.S. have led to significant backlash, with calls on social media to “sell your Tesla! Dump your Tesla stock!” flooding the platform he acquired. Consequently, Tesla’s market value has plummeted by $800 billion from its peak.
Even more concerning, Tesla delivered 1.789 million new vehicles in 2024, marking a 1.1% decline compared to 2023, representing the first drop in new vehicle sales in a decade and making it one of the few mainstream electric vehicle brands to experience a downturn. In contrast, BYD delivered 4.272 million new energy vehicles during the same period, a substantial increase of over 1 million vehicles compared to 3.024 million in 2023. Furthermore, Tesla’s automotive gross margin fell from 21.2% in 2023 to 16.9% in 2024.
In contrast to the decline in its automotive business, Tesla’s energy storage division has shown impressive performance. According to financial reports, revenue from its energy storage business reached $10.086 billion in 2024, a year-over-year increase of 67%, with gross margins rising from 18.9% to 26.2%. This success is attributed to Tesla’s innovation in integrating core components of the energy storage system, such as battery cells, thermal management systems, inverters, and fire protection equipment, into standardized modules, creating a “plug-and-play” energy storage system solution. The flagship product supporting this solution is the Megapack delivered from the Shanghai factory.
One of the advantages of this innovative approach is significantly reducing the construction timeline for large energy storage plants—200 Megapacks can establish a 1 million kWh energy storage facility in three months, while traditional methods typically require three years. Additionally, Tesla has adapted battery management system (BMS) technology from the electric vehicle sector to the energy storage field, building an advanced software system that enables real-time battery monitoring, optimization of charging and discharging strategies, and enhanced storage efficiency.
This combination of hardware and software has established Tesla’s energy storage products as leaders in the high-end storage market. The commissioning of the Shanghai energy storage factory will leverage the vast advantages of the Chinese supply chain to address its cost efficiency challenges, potentially turning cost into an advantage. According to research, China holds 68% of global energy storage battery production capacity, and localized production could reduce the cost of Tesla’s Megapack by nearly 30%.
On the other hand, Chinese companies are also actively enhancing their capabilities. In 2024, CATL launched the Tianheng energy storage system, achieving “zero degradation over five years” and increasing energy density by 30%, while reducing footprint by 20% to significantly improve project yield. Sungrow has developed grid-structured energy storage technology that ensures flexibility and rapid response in complex network conditions. BYD’s latest energy storage system, the MC Cube – T, featuring blade batteries, reduces the number of components by approximately 36%, increases space utilization by 98%, and enhances structural strength by 30%.
Simultaneously, Chinese firms are expanding internationally, accelerating market penetration through localized production in overseas factories, and leveraging their extensive integration within mature supply chains for solar and electric vehicles to create a distinct competitive advantage. On February 21, InfoLink Consulting released its 2024 global energy storage system shipping rankings, showing that Chinese and U.S. companies dominate the list, with Chinese firms occupying six positions and U.S. firms four. The shipping volumes from both sides are nearly equal, indicating a tightly contested market. This further highlights that the global energy storage competition is primarily a battle between Chinese and U.S. companies, and the establishment of Tesla’s energy storage factory in China will likely expedite the evolution of this competitive landscape. Based on past experiences, it may be the U.S. companies lacking a foothold in China that will be the first to exit this new paradigm.
