Tesla begins production at Shanghai Megapack Factory amid intensifying BESS price war

Tesla has officially announced the start of production at its Shanghai energy storage factory, the company’s first Megapack manufacturing facility outside the United States. While the public announcement came on February 11, construction of the plant had already been completed in December 2024 – just seven months after breaking ground in May.

The Shanghai facility will primarily produce Megapack, Tesla’s utility-scale battery energy storage system (BESS). Each Megapack unit weighs 38 tons and can store over 3.9 MWh of energy, sufficient to power approximately 3,600 households for one hour.

Production at the plant is set to scale up in the first quarter of 2025, with a target annual output of 10,000 units, equivalent to nearly 40 GWh of BESS capacity per year. This expansion is expected to significantly bolster Tesla’s position in the global energy storage market.

At the commissioning ceremony, Mike Snyder, vice president of energy and charging at Tesla, said, “We are committed to building energy products in synergy with electric vehicles to realize our vision of accelerating the world’s transition to sustainable energy. Today, we are here to celebrate the opening of the Shanghai Megapack Factory, which will begin its capacity climb this quarter and help Tesla expand into additional markets.”

Tesla’s latest financial results highlight the growing importance of its energy storage business. In 2024, the company deployed 31.4 GWh of battery storage systems, generating a record $10.86 billion in revenue, up 67% year-on-year. In contrast, Tesla’s automotive revenue declined by 6%, and net profit plummeted by 53%. Even in terms of profitability, the energy storage division posted a gross margin of 26.17%, far exceeding the 17.9% margin for Tesla’s vehicle business, reinforcing storage as Tesla’s next major growth driver.

The expansion comes as the global energy storage market undergoes rapid growth. Bloomberg NEF estimates that global storage capacity additions reached 69 GW/169 GWh in 2024, a 76% increase from the previous year. Meanwhile, China’s National Energy Administration (NEA) reported that the country deployed 42.37 GW/101.13 GWh of new energy storage capacity in 2024, marking an even sharper increase of 103% and 136%, respectively. China’s share of the global market continues to expand.

However, Tesla faces mounting competitiveness and pricing pressures. Following multiple rounds of price cuts, Megapack’s cost has fallen from CNY 4.56/Wh at the start of 2024 to CNY 2.23/Wh at the beginning of 2025 – a 51% reduction. Yet, Chinese manufacturers are offering complete systems at prices as low as CNY 0.6/Wh, with EPC (engineering, procurement, and construction) costs below CNY 1.2/Wh, placing Tesla at a significant pricing disadvantage.

Tesla’s traditional strongholds, including the U.S., Japan, and Australia, are also seeing intensified competition from Chinese firms such as CATL, Sungrow, and BYD. The Trump administration’s tariffs on Chinese-made lithium battery products add another layer of uncertainty, potentially impacting Tesla’s cost structure and profitability in key markets.