Tesla's profit dropped 46% year over year, the company revealed in its earnings update Wednesday evening.
That was not exactly a surprise — in fact, it was better than most analysts had expected. Tesla had already reported sales for the quarter, which showed the continuation of a slump that stretched through much of the year. More revenue from other parts of the company, like a growing energy storage business, haven't made up for the fact that Tesla's not selling as many cars as it used to.
Tesla, once the undisputed global leader in electric vehicle sales, has lost that crown as its brand reputation has soured and competition — particularly from China — has grown more intense.
But the company continues to maintain that it's in the process of transitioning from being a car company to a "physical AI company," with value based on its self-driving vehicle technology, its robotaxi service and, eventually, humanoid robots.
As part of that pivot, Tesla is discontinuing its higher-end Model S and Model X vehicles. The vehicles were already made in much smaller numbers than the more affordable Models 3 and Y, but had symbolic value. The Model S, in particular, was a major step forward for Tesla and electric vehicles; Tesla called it the "world's first mass-produced, highway-capable EV," and it was the first vehicle built at Tesla's Fremont factory.
Instead of more traditional vehicles, the company is focusing its attention on its "Cybercab," a vehicle designed without a steering wheel or pedals that's meant to replace existing Teslas in the company's nascent robotaxi business.
"We would expect over time to make far more Cybercabs than all of our other vehicles combined," CEO Elon Musk said on a quarterly earnings call with investors and analysts Wednesday night. "The vast majority of miles traveled will be autonomous in the future … I'm just guessing, but probably less than 5% of miles driven will be where somebody is actually driving the car themselves."
And as for robots, Tesla is taking the Model S and Model X production lines in the Fremont plant and dedicating that space to production of the "Optimus" humanoid robot, which Musk said would launch production this year. (Musk has a history, which he often jokingly refers to, of overpromising on timelines.)
Musk warned Wall Street that as part of these plans, the company would be shelling out a lot of cash in the year ahead — an eye-popping $20 billion, more than double what the company spent on capital expenditures in 2025.
"We're making big investments for an epic future," Musk said.
Tesla lost its spot as world's top EV seller
A Chinese company, not Tesla, is now the world's top EV maker.
In 2025, the Chinese automaker BYD sold more than 2.25 million battery-powered vehicles, according to the company.
Tesla sold 1.65 million, fewer than it sold in 2024. It's the second straight year of sales declines.
In late 2023, Musk had warned investors that Tesla was in between "growth waves," setting expectations low for 2024 but promising a return to rapid expansion with the launch of a "next-generation" vehicle that was tentatively planned for 2025.
That second growth wave hasn't materialized. Tesla repeatedly teased a much cheaper Tesla, rumored to sell for about $25,000 thanks to revolutionary changes in manufacturing. Even after Reuters reported that the vehicle was dead, Musk publicly maintained it was coming.
But it wasn't. Musk eventually confirmed that the company would focus its major redesign efforts on the Cybercab. Instead of offering a significantly cheaper vehicle, the company rolled out slightly cheaper versions of the Model 3 and Model Y.
Meanwhile, the electric vehicle market in the U.S. has taken a substantial hit. Sales were already underperforming expectations, and then President Trump took office and his administration began to systematically roll back EV incentives and regulations. Sales of EVs rose sharply in the summer of 2025 as consumers tried to take advantage of a disappearing consumer tax credit, and then dropped when the tax credit expired at the end of September. Automakers say it's still not clear what demand for EVs will look like without those tax credits.
Trump's policy changes have affected Tesla even more directly, by taking away a key revenue stream. Under previous government policies, automakers who didn't meet requirements for making their vehicles cleaner could buy "credits" from competitors who overperformed on building EVs, in lieu of paying fines. This was a lucrative source of cash for Tesla, and one that is now dwindling away. Tesla typically does not respond to requests for comment, and did not reply to an inquiry for this story.
Globally, meanwhile, EVs are still ascendant. In December, in the European Union, buyers registered more new pure EVs than traditional gasoline vehicles for the first time ever. Hybrids (like the original Prius) remain more popular than either, but that market isn't growing as fast as EVs. In Europe, EV sales increased by more than 50% year-over-year, while those popular hybrids rose only 6%. Traditional gasoline- and diesel-powered car sales dropped by around 20%.
In China, most new vehicles are already electric or plug-in hybrids. And Chinese exports of EVs are rising, taking off in places like Mexico and Brazil. Canada, too, just struck a deal to allow the import of some Chinese-made EVs without hefty tariffs.
In addition to BYD's conspicuous success, the major Chinese automaker Geely has boosted its battery-powered vehicle sales by 90% year over year, while competitor SAIC grew sales by 33%.
Those figures include the sales of plug-in hybrids, making them less of an apples-to-apples comparison to Tesla's pure electric sales — but compared to Tesla's sales decline, the trajectory is clear. Tesla once had the lead in the EV race, but the momentum is now with Chinese manufacturers.
Brand takes a beating
Meanwhile, Tesla has been grappling with an increasingly skeptical — or even hostile — consumer base in the U.S.
Musk's controversial political activities over the last few years have alienated many left-of-center Americans. While he won some fans on the right, so far, Republicans and conservatives remain less likely to buy EVs.
Evan Roth Smith is a pollster who has been tracking consumer sentiment about Tesla and EVs for the Electric Vehicle Intelligence Report. According to his most recent survey of more than 3,000 U.S. consumers, nearly all car brands have an overall positive reputation. Toyota ranks at the top: Nearly half of Americans have a positive view of the Japanese brand, and only 7% have a negative view. For Tesla, in contrast, 27% have a positive view and 37% a negative view — the company has more haters than fans.
Tesla's degree of unpopularity among the general public is very unusual for an automaker, he says: "Most carmakers don't have any sort of political valence or mass controversy attached to them."
And brand perceptions affect sales.
Even current Tesla owners, who have long been remarkably loyal to the brand, are showing a little more interest in shopping around. LexisNexis Risk Solutions tracks what brands current car owners purchase for their next vehicle; if they stick with the same brand, that's evidence of brand loyalty. In their data, Tesla — which has ranked first or second for industry loyalty in recent years — has slipped to third place in 2025.
The company still enjoys higher loyalty than the industry average. But it's clear that EV buyers have more options now, and even Tesla enthusiasts are more willing to consider them. In 2020, LexisNexis found that among existing Tesla owners who purchased another EV, a remarkable 98% got another Tesla. In 2025, that number dropped to 78%.
Musk's focus is on AI and robots, not cars
Musk — who was recently granted an extraordinary pay package worth up to a trillion dollars, contingent on meeting lofty goals for Tesla's growth and valuation — has maintained for years that Tesla's future lies in autonomous vehicles, artificial intelligence and humanoid robots.
But he has frequently missed his own timelines for those achievements; the driver-assistance software in Tesla vehicles still requires human oversight, and the robotaxi service is only available in small pilot programs in Texas and California, despite Musk projecting service to 50% of America by the end of 2025.
Roth Smith's polling has found that this continued focus on autonomy and robotaxis is not helping Tesla win over public opinion. The "Full Self-Driving (Supervised)" software that allows Tesla vehicles to steer themselves — with human oversight — is central to Musk's vision for the company. Roth Smith's survey found that only 14% of respondents said FSD made them more likely to buy a Tesla; 34% said it made them less likely.
And out of more than 20 different auto brands that Roth Smith polled consumers about, the only ones besides Tesla to have a net negative view from the public were Cruise, Waymo and Zoox — all autonomous vehicle companies.
"There's a lot of skepticism from consumers over whether this technology is safe for mass deployment yet, whether regulators are up to the task of creating rules of the road for autonomous vehicles," Roth Smith says.
By focusing so much on autonomy, Roth Smith argues, Musk has associated Teslas with these controversial robotaxis. "They now are perceived like a much more controversial, much more polarizing type of technology," he says.
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