Tesla Megapack Revamp: Boosting Energy Storage Business

Tesla Enhances Megapack Batteries to Revitalize Energy Storage Sector

Tesla is implementing updates to its large-scale Megapack battery systems in an effort to reverse a recent downturn in its profitable energy-storage division.

Introducing Megapack 3 and Megablock

Unveiled late Monday, the next-generation battery, designated Megapack 3, is designed to attract utility companies and data center operators facing increasing power demands. This new iteration boasts an energy storage capacity approximately 1 megawatt-hour greater than Tesla’s current flagship model, alongside an extended operational lifespan.

Alongside Megapack 3, Tesla introduced Megablock, a configuration comprising four Megapack 3 units. Megablock offers a total storage capacity of 20 megawatt-hours, sufficient to power roughly 4,000 homes for a period of four hours – a typical duration for battery discharge.

The company projects that utilizing Megablock will streamline installation processes by 23% and reduce overall construction timelines by as much as 40%. Battery cells will be procured from manufacturing facilities located in the U.S., Southeast Asia, and China.

Expanded Operational Range and Manufacturing

Improvements to the thermal management system will enable Megapack 3 to function effectively within a temperature range of –40°F to 140°F, ensuring suitability for diverse climates globally.

However, the financial benefits of these new products are not expected to materialize immediately. Production of both Megapack 3 and Megablock is slated to commence in the second half of 2026 at Tesla’s Megafactory near Houston.

Addressing Declining Performance

This update arrives as Tesla’s energy-storage business has experienced two consecutive quarters of declining performance. Despite remaining the leading supplier of battery energy-storage systems in 2024, its market share has been gradually diminishing, as noted by Wood Mackenzie.

Concurrently, the broader energy-storage industry has demonstrated substantial growth.

The new Houston facility will have an annual production capacity of up to 50 gigawatt-hours of Megapack 3 and Megablock units. In the last quarter, Tesla deployed 9.6 gigawatt-hours of stationary energy storage.

Potential Synergies with xAI

A potential customer for Tesla’s solar and energy-storage solutions exists within CEO Elon Musk’s other venture, xAI. The artificial intelligence company has already integrated 168 Megapacks into its data center in South Memphis, Tennessee, and is reportedly evaluating the addition of numerous gas turbines, though no further battery installations have been publicly announced.