Tesla’s primary source of revenue comes from the sale of its electric vehicles, but its latest quarterly earnings report showed growth in its energy storage and solar business.

The demand picture will get even sunnier for the division if the company can access enough chips for its energy storage products, according to Tesla CEO Elon Musk.

Tesla on Monday reported $801 million in revenue from its energy generation and storage business — which includes three main products: solar, its Powerwall storage device for homes and businesses, and its utility storage unit Megapack — but that’s just a sliver of the nearly $12 billion in total revenue. Small as it is, the division is selling more energy storage and solar. Revenue from this division grew 62% from the previous quarter and more than 116% from the same quarter in 2020. Tesla doesn’t separate solar and energy storage revenue.

More importantly, the cost of revenue for its solar and energy storage business was $781 million, meaning that for the first time the total cost of producing and distributing these energy storage products was lower than the revenue it generated. That’s good news.

As one might expect, total deployments also rose. Tesla installed 1,274 megawatt-hours of energy storage in the second quarter of 2021, a 205% increase from the same period last year. Similarly, the amount of solar energy deployed in the second quarter of this year was 85 MWh, up 214% from Q2 2020. As a side note: Tesla’s total solar and energy storage deployments were essentially flat when comparing Q2 2019 and Q2 2020 numbers, likely due to the pandemic’s general halting of business.

The important nugget is revenue growth. In 2019, Tesla reported $369 million in revenue from solar and storage. Revenue was stagnant in Q2 2020, with $370 million from that business. This quarter was more than double what Tesla brought in during the same quarters of 2019 and 2020.

What changed? Besides COVID-19, Tesla points to several Megapack projects coming online and growing popularity in its combined solar and Powerwall product. (Tesla no longer allows customers to order Powerwall without a solar installation.) According to a configurator on Tesla’s website, one Megapack is about $1.2 million before taxes. In some states, Tesla says the earliest deliveries will be in 2023.

Tesla’s energy storage business is facing headwinds, however. Musk said demand for both the Megapack and the Powerwall both exceed supply, and a backlog is growing. The company is unable to meet that demand because of the global chip shortage, he said.

Tesla uses the same chips in its Powerwall as it does in its vehicles, and Musk said vehicles are the priority while supply is low.

Musk said in the long term, Tesla and other suppliers would need to produce a combined 1,000 to 2,000 gigawatt-hours per year in order to keep up with energy storage demands. Musk said the company has asked its cell suppliers to double their supply in 2022, a goal that Musk caveated would be dependent on supply chain issues. The company’s current strategy is to overshoot cell supply and route it outward to its energy storage products, but as in the case of chip shortages, vehicle production would be prioritized, according to Musk.

While much of the battery cell discussion focused on its 4680 cell that is in development, Musk also touched on Tesla’s intentions to power some of its products with cheaper lithium-iron-phosphate (LFP) batteries. Specifically, he said there’s a good chance that all stationary storage could move to iron-based batteries and away from nickel-manganese-cobalt (NMC) and nickel-cobalt-aluminum batteries.

“I think probably will see a shift, my guess is probably to two-thirds iron, one-third nickel,” Musk said of Tesla’s plans. “And this is actually good because there’s quite a bit of iron in the world, an insane amount of iron. But there’s much less nickel and there’s way less cobalt.”

The one-third of batteries that will remain nickel-based will be used for its longer-range electric vehicles. All of its other EVs would also move to LFP batteries, which is already the case in its vehicles assembled in China.