Tesla Recalls 10,500 Powerwall 2 Units Over Fire Risk

Tesla is initiating a recall of approximately 10,500 Powerwall 2 units, its residential backup battery system, according to a disclosure released Thursday by the U.S. Consumer Product Safety Commission (CPSC). The announcement triggered a sell-off, with Tesla shares dipping over 7%.

The CPSC recall notice highlights a potential safety hazard: “The lithium-ion battery cells in certain Powerwall 2 systems can cause the unit to stop functioning during normal use, which can result in overheating and, in some cases, smoke or flame and can cause death or serious injury due to fire and burn hazards.”

While Tesla has attributed the issue to a “third-party battery cell defect,” the supplier remains unnamed, raising questions about quality control measures within its supply chain and the potential financial implications of future recalls.

The company has stated it is replacing affected units at no cost to the customers.

The recall follows 22 customer reports of Powerwall 2 overheating incidents, including five fires that resulted in minor property damage, but no reported injuries. This raises concerns about the robustness of Tesla’s internal testing and reporting protocols.

Powerwall is an integral part of Tesla’s Energy division which also offers large-scale backup batteries for utility and business applications. Powerwall integrates with Tesla’s solar photovoltaic (PV) systems, allowing homeowners to store energy for later use, including blackout scenarios or to manage peak-demand electricity pricing. These storage solutions have been a key element of Tesla’s strategy to offer a comprehensive clean energy ecosystem.

Tesla has clarified that the newer Powerwall 3 is not affected by the defect.

Notably, Tesla’s Energy division, driven by products like the Powerwall, has been a significant growth area for the company. In the third quarter of 2025, Tesla Energy saw revenue surge by 44% to $3.42 billion, representing roughly one-quarter of Tesla’s overall revenue. The current recall could potentially impact the division’s growth trajectory and profitability in the coming quarters, as remediation efforts and potential reputational damage weigh on performance.