Tesla's proposal to add 100GW of solar manufacturing capacity has shifted market focus from whether it will enter the module business to the strategic role this initiative plays in the company's long-term vision. A recent Morgan Stanley analysis points to two key drivers: supply chain security and data centers—specifically, "space data centers."
According to a report by analyst Andrew S. Percoco, Tesla's core motivation for vertically integrating its solar supply chain is not to sell panels on Earth but to support a grand vision for orbital data centers. Against a backdrop of rising geopolitical risks, securing this critical energy supply chain could boost the valuation of Tesla Energy by approximately 35% and serve as a necessary step in integrating Starlink with space-based computing.
The report also highlights that this strategy comes at a significant cost. Achieving full supply chain integration—from raw materials to finished modules—would require capital expenditures of $30 billion to $70 billion, an amount not included in Tesla's 2026 capital expenditure guidance of over $20 billion. Morgan Stanley suggests this gap is a key variable in reassessing the valuation of Tesla’s energy segment.
From a pure supply-demand perspective, Tesla's entry into solar manufacturing appears illogical. Global module production capacity already exceeds demand by nearly 40%, and annual utility-scale solar demand in the U.S. is only 30–40GW. If Tesla’s planned 100GW capacity were directed solely at the terrestrial market, it would face intense price competition.
However, the report reveals a critical mismatch in application: the majority of this capacity is intended for space data centers, not ground-based power plants. As AI computing extends into orbit, energy supply for orbital data centers has become a bottleneck. Elon Musk has repeatedly emphasized geopolitical threats to critical supply chains, signaling Tesla's unwillingness to depend on external sources for key energy components.
By pursuing vertical integration, Tesla aims to build an independent, controllable energy loop to support its long-term goal of deploying large-scale data centers in space. In essence, this represents a "security premium" paid for strategic autonomy.
Capital markets are particularly interested in the financial implications. According to Morgan Stanley’s estimates, Tesla’s investment scale will depend on the depth of integration:
- Full supply chain integration (from polysilicon to modules): capital expenditures of $30–70 billion. - Battery manufacturing only: capital expenditures reduced to $15–20 billion.
Despite the high initial investment, full utilization of 100GW capacity would generate substantial cash flow. Assuming an average module price of $0.25 per watt, this alone could bring in $25 billion in annual revenue. By comparison, Tesla’s existing energy storage business is projected to generate around $13 billion in revenue in 2025. This suggests the solar segment could nearly double the scale of the storage business.
On the profitability side, a mature vertically integrated model could push gross margins to 20–25%. After operating expenses, it is expected to contribute $3–4 billion in additional EBIT to Tesla Energy.
Beyond strategic value, the Inflation Reduction Act (IRA) offers substantial subsidies that support this business model. Tax credits under Section 45X vary significantly by manufacturing segment:
- Full domestic supply chain integration could yield subsidies of $0.17 per watt, translating to $17 billion in annual benefits at 100GW capacity. - Battery manufacturing alone would yield roughly $0.04 per watt, or about $4 billion per year.
Morgan Stanley notes that this policy arbitrage provides a safety net for Tesla’s high capital expenditures. Even if module sales yield thin margins, substantial tax credits would ensure attractive returns.
Under this new logic, Morgan Stanley has revised its valuation model for Tesla Energy. The standalone valuation for Tesla Energy is currently $140 billion (approximately $40 per share), with the solar manufacturing segment potentially adding an additional $25–50 billion in equity value (about $6–14 per share).
While this increment may seem modest relative to Tesla’s total market capitalization, its strategic importance lies in eliminating a "bucket effect." Without its own solar supply capability, Tesla’s expansion in energy storage, space exploration, and AI computing would eventually face energy constraints.
This investment effectively serves as high-value "insurance" for Tesla’s future interplanetary operations, ensuring that the company is not hindered by a single component—a solar panel—in the race toward physical AI and space infrastructure.