Tariffs can't stop cheaper, better Chinese tech, says Jefferies. Tesla is America's great hope
Battery energy storage systems (BESS) could become standard at datacenters as AI infrastructure expand, with analysts forecasting 20 GW of capacity deployed over the next decade.
Hyperscalers building AI facilities progressively view BESS as essential to their energy mix, according to financial analyst Jefferies in a report shared with The Register.
"With hyperscalers increasingly embracing some permutation of grid-connection and BTM (behind the meter) backup generation, we see BESS as a complementary resource to enable flexible load management, accelerate speed to interconnection, and provide backup capacity in a redundant form factor," the report states.
Battery systems serve primarily as backup energy alongside generator sets and other forms of storage such as solid-oxide fuel cells. Jefferies expects most BESS growth to come from utilities struggling with surging demand for energy from electric vehicles and datacenter prolifereation.
Jefferies' report notes that battery storage is "one of the few carbon-free technologies likely to thrive under a Trump administration." It cites policy support and grid reliability needs driving growth beyond datacenter applications.
"Hyperscalers present a 20 GW opportunity at least, with 2–4hr LFP (lithium iron phospate) most likely to benefit," Jefferies says. But there's a catch: datacenter operators optimizing for quality and price will find Chinese suppliers most compelling — a politically fraught choice.
"Among the global battery suppliers, we view Chinese peers like CATL and Sungrow as best positioned to benefit from elevated US demand," Jefferies says. "Chinese systems remain meaningfully cheaper and more advanced in energy density and efficiency, with recent channel checks that point to an uptick in Chinese exports supporting our view."
In the US, some states and utilities may avoid Chinese BESS due to cybersecurity concerns - Jefferies suggests Tesla and Fluence Energy as domestic alternatives, even though is suspects China will "remain highly competitive and maintain its US market share advantage."
Even 40 to 50 percent tax credit for US manufactured systems often can't overcome the price differential, the report states.
Among the domestic providers, Tesla is best positioned with its Megapack and newly announced Megablock as a "strong option for AI datacenter use cases," the report indicates. The xAI campus in Tennessee is one of the few data facilities to publicly announce its planned storage system and specify capacity (~655 MWh) and supplier.
"Of course, xAI would naturally use Tesla storage systems, but we think the planned deployment of Megapacks at least validates the need for utility-scale BESS paired with datacenters," Jefferies adds.
The report forecasts mid single-digit growth in 2026 due to Foreign Entity of Concern (FEOC) measures coming into effect and tariff disruptions that briefly pushed Chinese battery import taxes more than 150 percent.
Datacenter demand won't significantly drive growth next year as AI buildout remains early-stage, but Jefferies expects a substantial uptick in 2027. ®