Tesla Inc. (NASDAQ: TSLA) on Wednesday reported fourth-quarter 2025 financial results that exceeded market expectations on earnings, as improving margins and strong growth in its energy storage business partially offset weaker automotive demand. Shares rose about 3% in after-hours trading following the release.
For the quarter ended Dec. 31, 2025, Tesla reported total revenue of $24.9 billion, modestly above the consensus estimate of $24.78 billion, though down 3% from the same period a year earlier. Non-GAAP earnings per share came in at $0.50, compared with analyst expectations of $0.45.
Margin Performance
Tesla reported a GAAP gross margin of 20.1% for the quarter, its highest level in two years. Automotive gross margin, excluding regulatory credits, improved to 17.9%, up from 15.4% in the prior quarter, despite a decline in vehicle revenue.
Automotive revenue fell 11% year-over-year to $17.7 billion, reflecting lower delivery volumes and pricing pressure. Management attributed the improvement in margins to continued reductions in manufacturing costs, including lower battery raw material prices, and operational efficiencies linked to its “unboxed” production approach.
Regulatory credit revenue remained a modest contributor to overall profitability during the quarter, and Tesla reiterated its focus on cost discipline as vehicle pricing remains competitive across key markets.
Full-Year Results
For the full year 2025, Tesla reported total revenue of $94.8 billion, marking the first annual revenue decline in the company’s history. Vehicle deliveries for the year totaled 1.636 million units, down 8.6% from 2024, reflecting softer global demand, maturing product lines, and the expiration of certain electric vehicle incentives in the United States during the second half of the year.
The company faced particular pressure in Europe, where vehicle registrations declined amid reduced government subsidies and heightened competition from domestic and Chinese manufacturers.
Despite weaker automotive performance, Tesla’s Energy Generation and Storage segment recorded substantial growth. The company deployed 14.2 gigawatt-hours (GWh) of energy storage during the fourth quarter, an increase of 81% from the prior year. Full-year energy storage deployments reached 46.7 GWh, more than double 2024 levels.
Revenue from the energy segment totaled $3.8 billion in the fourth quarter, providing an increasingly significant contribution to Tesla’s overall results as automotive growth slowed.
Capital Allocation and Strategic Direction
During the earnings call, management described 2025 as a transitional year, with increasing emphasis on artificial intelligence, robotics, and autonomous systems alongside its automotive operations.
Tesla said it plans to discontinue production of the Model S and Model X, reallocating production capacity at its Fremont facility toward new initiatives, including the Optimus humanoid robot. The company stated that the facility will be reconfigured to support high-volume production of robotics hardware.
Tesla also reaffirmed its timeline for the launch of its purpose-built autonomous vehicle, referred to as the “Cybercab,” with production expected to begin in the first half of 2026.
Capital expenditures are expected to rise materially as a result of these initiatives. The company projected capital spending of approximately $20 billion in 2026, up from recent levels, driven by investments in AI infrastructure, manufacturing capacity, and a $2 billion commitment to xAI.
As of year-end, Tesla reported a cash and equivalents balance exceeding $44 billion, which management said would provide sufficient liquidity to fund planned investments.
Industry and Market Context
The electric vehicle market in 2025 was characterized by slower growth and increased competition. Chinese automaker BYD surpassed Tesla in annual battery electric vehicle deliveries for the first time, supported by strong domestic demand and international expansion.
Tesla’s performance in Europe was particularly affected by subsidy rollbacks, while pricing competition intensified across all major regions. Analysts noted that the global EV market has entered a more mature phase, with manufacturers increasingly competing on cost, software, and ecosystem differentiation rather than volume growth alone.
Looking ahead, Tesla’s longer-term growth outlook is increasingly tied to its ability to generate recurring revenue from software and autonomous services. The company continues to expand its Full Self-Driving offering under a subscription model, though regulatory approvals remain pending in several major markets, including China and parts of Europe.
Management indicated that progress in autonomy, energy storage, and robotics will be key factors influencing financial performance in 2026 and beyond, as Tesla navigates a more competitive and capital-intensive operating environment.
Reasons to Pass on TSLA
- First annual revenue decline: Tesla reported its first year-over-year drop in total revenue in 2025.
- Lower vehicle deliveries: Full-year deliveries fell 8.6%, reflecting weaker global demand.
- Automotive revenue down: Fourth-quarter automotive revenue declined 11% year-over-year.
- Europe demand pressure: Registrations declined following subsidy reductions.
- Higher capital spending: Capital expenditures are projected to rise to about $20 billion in 2026.
- Execution risk in strategic shift: Increased focus on AI, robotics, and autonomy remains unproven at scale.
- Regulatory uncertainty: Expansion of Full Self-Driving depends on approvals in key markets.
- EV pricing pressure: Competitive pricing continues to weigh on revenue growth.