Tesla’s energy division has reported a significant transaction with Elon Musk’s artificial intelligence venture, xAI. According to a recent SEC filing, Tesla sold $430 million worth of its Megapacks, large-scale battery storage systems, to xAI in 2025. This deal represented approximately 3.4% of Tesla’s energy business revenue for the year, a segment that saw robust growth, increasing by 27% to $12.8 billion from $10.1 billion in the previous year.
The energy division, encompassing solar photovoltaics and battery storage solutions, has emerged as a key growth driver for Tesla. This stands in contrast to its automotive segment, which experienced a 10% revenue decline to $69.5 billion. This downturn in auto sales, attributed to a softening brand image and an aging product line, led to an overall revenue decrease of roughly 3% for Tesla, marking its first recorded annual decline.
xAI, founded by Musk in March 2023 and publicly launched that July, is positioned as a competitor to OpenAI. Musk, a co-founder of OpenAI, departed the organization in 2018. The relationship between Musk’s ventures and OpenAI has become increasingly contentious, with ongoing litigation between the two parties.
In addition to the Megapack sales, Tesla has also made a direct investment in xAI. The automaker committed $2 billion to xAI’s latest funding round, as announced during Tesla’s fourth-quarter earnings call. This investment follows a period of scrutiny for xAI’s Grok chatbot and image generation capabilities, which have been implicated in the non-consensual creation and dissemination of explicit deepfake imagery, leading to investigations in various jurisdictions.
xAI recently announced a substantial funding round, raising $20 billion from a consortium of investors, including technology giants Nvidia and Cisco. Reports also suggest that SpaceX, another Musk-led company, is exploring a potential merger with xAI, possibly in anticipation of an initial public offering for the aerospace firm.
The Megapacks supplied to xAI are intended to bolster the infrastructure of its data center operations, particularly at its “Colossus” facility near Memphis, Tennessee. Tesla’s Megapacks and the newer Megablock configurations are designed for utility-scale energy storage, utilizing lithium-ion or similar battery technologies to provide grid stability and store power from renewable sources.
However, xAI’s operations at the Colossus facility have drawn considerable community backlash. Aerial footage revealed the use of 35 natural gas-burning turbines to power the data center in 2025. Residents have lodged complaints regarding air quality, health concerns, and an inability to maintain comfortable living conditions due to the emissions. The Environmental Protection Agency has since clarified that such turbines are subject to Clean Air Act permitting requirements, potentially complicating future expansions.
Furthermore, Tesla shareholders have raised concerns regarding Musk’s allocation of company resources. A pending lawsuit in Delaware alleges that Musk has breached his fiduciary duty by diverting Tesla’s assets to support xAI.
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