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Tesla stock is a buy as it builds out an energy ecosystem that is "Apple-esque," according to Wall Street research firm William Blair.
William Blair analyst Jed Dorsheimer initiated coverage of Tesla with an "Outperform" rating on Thursday, calling the EV maker's energy business "underappreciated" amid growing power demand from data centers and the rise of renewables.
"We view Tesla Energy as the most underappreciated component of the Tesla story and expect the narrative will shift toward the energy storage business in light of tempered EV expectations in the near term," Dorsheimer explained.
Three key drivers for Tesla's energy storage business include data center buildout, efforts to stabilize America's power grid, and the integration of renewable energy.
"Combined with the auto business and longer-term opportunities like AI, robotaxi, and robotics, we see Tesla as a technology leader with an 'Apple-esque' ecosystem for the future of energy," Dorsheimer said.
Tesla products have long been compared to Apple products, with its cars sometimes being called an "iPhone on wheels."
And Tesla CEO Elon Musk himself sought to sell the company to Apple during its production woes with the initial Model 3 launch in 2018, according to a tweet from 2020.
But the focus of William Blair's research on Tesla is its energy business, which includes solar panels, charging stations, and battery packs for both residential homes and utility companies.
Dorsheimer estimates that Tesla's energy business could grow at a compounded annual growth rate of 50% through 2028, quadrupling the unit's revenue contribution to 25% from 6%.
"We view Tesla's Megapack as the standalone leader in energy storage and believe it will capture significant market share in each of those areas," Dorsheimer said.
According to the note, Tesla's Megapack could turn into the company's fastest-growing business with superior profit margins compared to its EV business. The Megapack is a large-scale network of rechargeable batteries that provides energy storage capabilities geared toward utilities and large-scale commercial projects.
"Our analysis forecasts that Megapack will be Tesla's fastest growing product and meaningfully increase the EPS contribution from $0.14 in 2024 to $2.35 in 2028," Dorsheimer said.
While Dorsheimer is bullish on the potential for Tesla's energy business, not everyone is convinced, including longtime Tesla investor Ross Gerber.
In a recent interview, Gerber said Tesla is a car company at the end of the day, and it's recent struggles to grow its car sales has led the investor to start selling Tesla stock.
"That's just a distraction from the fact that they need to sell cars, this year, and next year, and the year after, because none of this is coming anytime soon," Gerber said of Tesla's robotic and self-driving efforts.
Shares of Tesla traded higher by about 2% on Thursday following the bullish report.
William Blair did not assign a price target to Tesla, but said its premium valuation is justified.
"We believe the halo effect created by Musk, the company's culture of first principles, and the technology advantages it has established warrant its significant valuation premium," Dorsheimer concluded.
