In a revelation buried in Tesla’s latest annual filing, the electric-vehicle giant disclosed sales of $430 million in Megapack energy-storage products to xAI, Elon Musk’s artificial-intelligence startup, during 2025. The transaction, representing 3.4% of Tesla’s energy-division revenue that year, underscores the deepening ties between Musk’s interlocking companies as AI data centers devour unprecedented power.

Tesla’s energy segment surged 27% to $12.8 billion in 2025, a stark contrast to the company’s automotive revenue, which plunged 10% to $69.5 billion amid slumping deliveries and fierce competition. The Megapack deals with xAI highlight how Tesla’s battery business is emerging as a critical revenue pillar, powering the very infrastructure fueling Musk’s AI ambitions in Memphis, Tennessee.

Megapacks Fuel Colossus Supercluster

xAI’s Colossus data center in Memphis relies on Tesla Megapacks to stabilize its massive energy demands. The facility, which houses hundreds of thousands of Nvidia GPUs, previously deployed 168 Megapacks for Colossus 2, providing backup for operations that consume power equivalent to hundreds of thousands of homes, according to Teslarati. Earlier shipments included another 156 units for the initial phase, enabling xAI to manage outages and peak loads from its 150-megawatt grid connection supplied by Memphis Light, Gas and Water and the Tennessee Valley Authority.

These containerized lithium-ion systems, each storing up to 3.9 megawatt-hours, allow xAI to sidestep blackouts and integrate renewables, a necessity as Colossus scales toward one million GPUs requiring over one gigawatt. xAI’s official Memphis account confirmed arrivals of Megapacks in late 2025, stating, “These Megapack batteries are large scale, containerized lithium-ion battery systems designed by Tesla for utility-scale and commercial energy storage. It will allow our xAI data centers to grow,” as reported by Tesla North.

Throughout 2025, xAI ramped up deployments, with reports of over $375 million in Megapacks for Colossus II alone, per Data Center Dynamics. This buildup followed xAI’s $80 million purchase of a one-million-square-foot site in Whitehaven, Memphis, in March 2025, positioning the supercluster as a cornerstone of Grok AI model training.

Navigating Turbines and Emissions Backlash

Colossus’s voracious appetite initially led xAI to install 35 natural gas-burning turbines in 2025, drawing fire from residents over noxious emissions and health complaints, as documented by aerial video from the Southern Environmental Law Center and covered by CNBC. The Environmental Protection Agency clarified that such turbines require Clean Air Act permits, prompting xAI to pivot toward grid power and Megapacks.

By mid-2025, a new 150-megawatt substation reduced turbine reliance by half, with Megapacks filling the gap for cleaner backup. The Greater Memphis Chamber noted the shift: “xAI was connected to a newly constructed electric substation… Additionally, 150MW of Megapack Batteries for stored energy backup have been integrated,” signaling a move to sustainable operations amid community pressure.

This transition aligns with Tesla’s broader energy strategy, where Megapacks mitigate grid strain from AI hyperscalers. As one analyst put it in SemiAnalysis, xAI’s Memphis build represents “the first gigawatt datacenter,” blending onsite generation, grid ties, and battery buffers.

Tesla Energy’s Breakout Amid Auto Woes

Tesla’s energy division deployed record volumes in 2025, hitting quarterly gross-profit highs driven by Megapack and Powerwall demand. The segment’s resilience buffered overall revenue, which dipped 3% to $94.8 billion—the company’s first annual decline—despite auto margins improving to 17.9% excluding credits, per Reuters.

Global backlogs remain robust into 2026, with new Megapack 3 and Megablock units—groupings of four packs around a transformer—set for Houston factory production. These innovations promise 23% faster installs and 40% lower construction costs, targeting AI data centers worldwide, as detailed by Teslarati.

xAI’s purchases exemplify this trend, with cumulative investments exceeding $375 million by late 2025, building on $230 million from 2024-early 2025 noted in Tesla filings and Interesting Engineering.

Musk’s Web of Investments and Conflicts

Beyond Megapacks, Tesla committed $2 billion to xAI’s $20 billion Series E round in January 2026, acquiring preferred shares alongside Nvidia and Cisco, as announced in Tesla’s Q4 update and reported by Teslarati. The deal, defying a failed November 2025 shareholder vote due to abstentions, includes a framework for AI collaborations, with xAI’s Grok already integrated into Tesla vehicles.

CFO Vaibhav Taneja affirmed during earnings: “Today, if you look at Tesla vehicles, we are using Grok in there,” per Fortune. Tesla ended 2025 with $44.1 billion in cash, making the stake—less than 1% of its $1.5 trillion market cap—feasible despite capex plans doubling to over $20 billion for robots and Cybercabs.

Yet, tensions simmer: A Delaware lawsuit accuses Musk of breaching fiduciary duties by diverting Tesla resources to xAI, as noted in WebProNews. Critics on Reddit’s r/teslamotors called it Tesla buying back into a “poached” venture at inflated valuations.

AI Power Crunch Meets Battery Boom

Colossus’s evolution—from 100,000 H100 GPUs in 122 days to 200,000 by mid-2025—demands gigawatt-scale power, per HPCwire. xAI imported turbines and plans further substations, but Megapacks provide the agile buffer, reducing emissions and grid stress.

This symbiosis positions Tesla as the “arms dealer in Musk’s AI war,” supplying not just xAI but potentially rivals like OpenAI, as mused in TradingKey. With U.S. battery builds hitting 18 gigawatts in 2025, Tesla’s 35% share in markets like Australia signals dominance.

As Musk eyes Optimus robots and Cybercab fleets—both eyeing xAI tech—the Megapack pipeline to Colossus foreshadows a physical AI ecosystem powered by Tesla batteries, intertwining fates in an energy-hungry future.