Elon Musk’s Tesla is grappling with a worrying trend in its automotive division, despite ambitious projections for its AI-driven future.
Slow Growth in Car Sales and Declining Margins
Tesla’s automotive business is showing signs of struggle, despite the company’s reputation for innovation. The electric vehicle giant’s car sales growth has been minimal, and the company’s profit margins are taking a significant hit. In the fourth quarter of the year, margins continued to decline due to excess inventory liquidation, leading to a steep drop in the average selling price of vehicles.
Tesla’s financial outlook for 2025 is filled with uncertainties. The company’s gross margin, excluding the sale of CO2 credits, fell to its lowest level in five years, dipping to just 13.6%. This was over a percentage point lower than analysts had expected. Tesla’s net income also barely surpassed expectations, thanks to a $600 million gain from marking the value of its Bitcoin holdings. Critics, including Gerber Kawasaki CEO Ross Gerber, point out that Tesla is struggling to sell its cars, relying heavily on price cuts and other demand strategies to clear its inventory.
Production Challenges Ahead with Model Y Refresh
Tesla’s automotive production is expected to face short-term challenges in the first quarter of 2025. with production setbacks anticipated due to the launch of the updated Model Y, codenamed Juniper. Tesla plans to introduce this refreshed model simultaneously at factories on three continents, which will likely result in several weeks of lost production. Tesla’s Chief Financial Officer, Vaibhav Taneja, explained that this is an unprecedented move for the company, and the production downtime will likely impact the company’s profitability. Despite these challenges, Tesla’s stock has remained strong, buoyed by Musk’s announcement of a new robotaxi service slated for launch in June 2025.
Tesla Shifts Focus to AI and Robotics Amid Car Business Setbacks
While Tesla’s automotive business faces difficulties, Elon Musk is shifting the company’s focus toward its AI and robotics ventures. During the most recent earnings call, Musk devoted much of his time discussing Tesla’s artificial intelligence advancements, including its robotaxi service and the development of the Optimus humanoid robot. Musk is optimistic that Tesla’s AI business could eventually generate over $10 trillion in revenue, with the robotaxi service set to roll out across the U.S. in 2025, followed by an expansion in 2026.
Musk’s ambitious target for the Optimus robot is equally bold, with production slated to hit 10,000 units in 2025 and grow exponentially in the following years. While Musk admitted that these predictions may sound “insane,” he believes they could become a reality. However, the stark contrast between these optimistic AI projections and the struggles in Tesla’s car division has led to skepticism among analysts. Some, like Wedbush Securities analyst Dan Ives, argue that the company’s financial performance in Q4 only reinforces the doubts of those who are less convinced by Musk’s AI-driven vision for Tesla’s future.
