Tesla disclosed in a financial filing on Thursday that it sold $4.3 billion worth of Megapack large-scale energy storage batteries to xAI, an artificial intelligence startup owned by Elon Musk, in 2025.
The filing revealed that sales to xAI accounted for approximately 3.4% of Tesla's energy business revenue; Tesla's energy business revenue grew 27% year-over-year in 2025, increasing from $10.1 billion in 2024 to $12.8 billion.
Tesla's energy division, which focuses on solar photovoltaic products and energy storage battery systems of various specifications, has been a bright spot in the company's portfolio. In contrast, the automotive business, impacted by brand reputation issues and an aging vehicle lineup, saw revenue decline by 10% to $69.5 billion.
Since the automotive business remains Tesla's primary revenue source, the company's total revenue for 2025 decreased by approximately 3% year-over-year, marking the first revenue decline in its history.
Elon Musk formally registered xAI in March 2023 and announced the company's existence four months later, positioning it as a competitor to OpenAI that "does not cater to political correctness." Musk was a co-founder of the AI lab OpenAI in 2015 but left the company in 2018, several years before the launch of ChatGPT. The two companies are now embroiled in intense litigation, with related court proceedings expected to begin this April.
In its fourth-quarter earnings report released on Wednesday, Tesla announced a $2 billion investment in xAI, participating in the startup's latest funding round.
This investment by Tesla follows investigations launched in multiple jurisdictions into xAI's Grok chatbot and image generation tools, which have been accused of facilitating the creation and dissemination of a large volume of non-consensual explicit deepfake images.
Earlier this month, xAI announced it had raised $200 billion in its latest funding round, with investors including NVIDIA and Cisco. Musk's space technology company, SpaceX, is reportedly considering a merger with xAI ahead of a planned initial public offering.
xAI had previously announced that it is utilizing Tesla's Megapack batteries to power its data infrastructure located in and around Memphis, Tennessee, which is home to xAI's "Colossus" data center.
Tesla's Megapack batteries are primarily used for commercial and utility-scale energy projects; the new-generation battery systems, called Megablocks, combine four Megapack units with a single transformer. These storage systems, which use lithium-ion or other types of battery cells, help data centers and utilities prevent power outages while enabling the storage of renewable energy like solar and wind.
According to aerial video footage obtained by the Southern Environmental Law Center, xAI installed and activated 35 natural gas turbines at the "Colossus" data center in 2025 to power its operations. Exhaust fumes from these turbines have sparked strong discontent within the local community, with residents complaining of pungent odors, negative health effects, and an inability to open their windows for ventilation.
The U.S. Environmental Protection Agency recently updated regulations concerning the use of natural gas turbines, clarifying that such equipment is not exempt from the permitting requirements of the Clean Air Act.
There is currently a pending lawsuit against Musk in Delaware, where plaintiffs allege that Musk violated his fiduciary duties to Tesla shareholders by diverting Tesla's resources to xAI.