It’s a good thing for Tesla that its chief executive has cosied up to the US president, because the company’s latest numbers are awful.
Tesla missed earnings estimates for the fourth quarter. The bigger issue is that the miss would have been even worse if Tesla hadn’t pulled a couple of levers. Another big slug of greenhouse gas credit sales combined with an unusually large dollop of “other income”, due mostly to an accounting change related to bitcoin holdings, added up to US$1.5-billion. Tax-adjusted, that’s half of Tesla’s entire earnings for the quarter right there. These earnings aren’t just weak but low quality, too.
Tesla touted a record quarter in terms of vehicle and battery sales. Somehow that translated to the opposite for its financials. The closely watched metric of automotive margin with emissions credit sales stripped out hit its lowest since at least 2018, at 13.6%. Average revenue per vehicle sold, excluding leases and credits, dropped below $40 000 and gross margin on that basis slumped to about $5 100; again, the lowest since at least 2018.
In an oblique way, Tesla spelled out the problem, albeit framed as a win. It noted high up in Wednesday evening’s earnings report that it reduced its average cost of vehicle production to the lowest level ever at under $35 000 apiece. That it did. But this draws attention to an underlying problem: Tesla’s production costs are declining in tiny increments. The average drop per quarter over the past two years is less than 2%. This makes margins vulnerable in a price war — which is exactly what has happened with EVs amid slowing sales growth in the US and intense competition in China.
Tesla’s ageing model line-up compounds the issue. The result is falling prices twinned with stubborn costs and, therefore, dramatically lower margins. Consider that Tesla sold 36% more vehicles in 2024 than it did two years before, as well as far more battery capacity, and yet operating profit fell by about half.
Gut punch
These results are even more of a gut punch when one recalls the last earnings call. Back then, Tesla was scrambling to recover from the flop that was its robotaxi unveiling event. Tesla reported better-than-expected results soon after, albeit more of a bottoming out than a rebound. But Elon Musk shifted the narrative completely by touting big growth in fourth-quarter vehicle sales and growth of another 20-30% in 2025. Tesla’s value soared by more than a fifth the next day. As it turned out, sales missed that guidance in the fourth quarter and, curiously, that 2025 target wasn’t repeated with the latest results — probably a good thing given US President Donald Trump’s anti-EV executive orders.
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Nonetheless, Musk was in an expansive mood on Wednesday’s earnings call, albeit mostly about things other than the EV sales that account for the vast majority of Tesla’s revenue and profits. Self-driving vehicles figured large, of course, with Musk declaring that “the reality of autonomy is upon us”, before going on to say that it wasn’t quite upon us, and Tesla will launch a geofenced robotaxi service in Austin in June. Tesla’s stock popped in after-market trading on that line, despite the fact that it simply pinpointed a month for a 2025 target Musk had already touted previously. Musk also didn’t mention any robotaxis in California this year, as he had before — until someone asked a question. He then expressed confidence in Tesla launching unsupervised full self driving not just in the Golden State but many regions of the country. You just don’t get guidance in quite this format with other companies.
Optimus, Tesla’s humanoid robot project, also loomed large. Despite this week’s DeepSeek wobble, artificial intelligence remains the biggest industrial and technology theme, and provides critical support for Tesla’s gargantuan market cap given the glaring weakness of the core EV business. Musk touted 2025 as “maybe” the most important year in Tesla’s history and also rolled out an oldie about Tesla becoming the most valuable company in the world, albeit with a new twist of possibly becoming more valuable than the next five companies combined (for those counting, that would be a market cap of about $15-trillion at current levels).
Towards the end, the call devolved into Musk taking swipes at the media, denouncing Europe as a “layer cake of regulations”, and talking about the need to “make manufacturing cool again” in the US. What with that and the results-defying fist pumping, all that campaigning last year seems to have really rubbed off. — Liam Denning, (c) 2025 Bloomberg LP
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