Elon Musk's Tesla Inc.'s energy division stood out as the lone bright spot in an otherwise challenging first quarter.

Tesla Inc.'s (NASDAQ:TSLA) energy division stood out as the lone bright spot in an otherwise challenging first quarter, though the company's CFO, Vaibhav Taneja, warned that the segment may face significant headwinds in the quarters ahead, owing to the tariffs imposed on China.

What Happened: During Tuesday's first-quarter earnings report, Tesla's energy and storage segment posted $2.7 billion in revenue, marking a 67% increase from the same period last year. Gross profit for the segment rose 82% year-over-year to $690 million, a rare bright spot in a quarter where overall company profits plunged 71%.

The segment, which makes battery packs for energy storage, aimed at residences, commercial applications, as well as utilities, saw 10.4 GWh of deployments during the quarter, up 156% year-over-year.

The segment’s gross margins at 29% helped boost the company’s margins to 16.3%, ahead of consensus estimates of 15.8%.

See More: Tesla Says More Affordable Models Launching This Year: ‘They Will Be Affordable And You’ll Be Able To Buy One’

However, Taneja said during the call that the segment faces substantial headwinds owing to the tariffs. “The impact of tariffs on the energy business will be outsized since we source LFP battery cells from China,” he said.

According to Taneja, the company is in the process of commissioning equipment for local manufacturing of LFP battery cells in the U.S. It is also working to secure additional supply from non-China-based suppliers, but the CFO says that “it will take time.”

Why It Matters: Tesla launched its first megafactory outside the United States in Shanghai earlier this year, with a focus on producing energy storage products. But just months into operation, new tariffs have already disrupted those plans, throwing a wrench into the company's international expansion strategy.

After deployments hit a record high during its fourth quarter, the company had forecasted a 50% surge for 2025, but supply constraints from the tariff could impact these figures.

Despite his ties to the Trump administration, Tesla CEO Elon Musk has been an outspoken critic of tariffs, at one point even making a personal appeal to President Donald Trump to reconsider the policy, citing its negative impact on Tesla's operations.

Price Action: Tesla stock was up 4.6% during the regular session on Tuesday, closing at $237.97 a share. Following the first quarter earnings release, the stock is up 5.39% in after-hours trading.

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