New York (AFP) – Tesla reported a 61-percent drop in fourth-quarter profits on Wednesday due to lower auto sales and increased expenses as CEO Elon Musk ramps up technology investments. The results conclude a turbulent year for the electric vehicle maker that included a controversial Musk stint in Donald Trump’s White House and a shareholder vote in November to award the outspoken CEO a pay package worth as much as $1 trillion in anticipation of massive technology breakthroughs at Tesla. Profits came in at $840 million in the quarter ending December 31, down from $2.1 billion a year earlier. Revenues were $24.9 billion, down 3.1 percent.
Lower profits had been expected after Tesla reported a drop in fourth-quarter and full-year auto deliveries early in January. A company presentation cited a litany of other factors. These included higher restructuring costs, increased research and development funding for AI pursuits, the drag from higher tariffs, and a decline in revenues tied to emission tax credits following Trump’s reversals on US environmental policies.
Musk opened a conference call by saying he was committed to “very, very big investments” to realize the mission of working to ensure “the best future,” an “era of abundance” where the “environment is great, nature is great, and people can have whatever they want.” Chief Financial Officer Vaibhav Taneja said the 2026 capital spending budget would be “in excess of $20 billion,” more than double the $8.5 billion last year. Musk said Tesla plans to wind down production of the Models S and X luxury EVs and will convert plant capacity in Fremont, California, to build humanoid robots.
Tesla’s outlook did not include a projection for its expected 2026 auto sales, saying it would depend partly on “aggregate demand for our products.” In its January 2025 earnings release, Tesla projected a return to growth in vehicle sales. But Tesla’s 2025 auto sales fell nine percent, reflecting increased competition from rivals and blowback to Musk’s embrace of Trump and far-right political figures.
Shares of Tesla rose sharply in the second half of 2025 after Musk left the White House, despite weaker financial results being shrugged off due to Tesla’s perceived growth potential. Musk has touted Tesla’s technological prowess on artificial intelligence and autonomous driving as a decisive advantage against rivals that justifies the company’s lofty stock market valuation. The company describes itself as in “transition from a hardware-centric business to a physical AI company.”
At the World Economic Forum earlier this month, Musk described self-driving cars as “essentially a solved problem at this point,” adding that the robotaxi service will be very widespread in the United States by the end of 2026. Musk has also spoken optimistically about the expected growth in revenue tied to subscriptions of the driver-assistance “FSD” program. Many analysts have learned to take Musk’s utterances with a grain of salt after earlier predictions about the nearness of fully autonomous driving didn’t come to pass.
CFRA Research analyst Garrett Nelson characterized Wednesday’s results as better than expected, pointing to revenue gains from Tesla’s energy generation and storage business and the company’s confirmation of the buildout of Cybercab and other big projects targeted for 2026. Still, “execution risk is high as Tesla has its work cut out to deliver on its promises and justify the company’s lofty valuation in the face of challenging EV demand and growing competitive threats,” Nelson said.
Included in Wednesday’s earnings press release, Tesla disclosed that it entered into an agreement on January 16 to invest $2 billion in Musk’s xAI artificial intelligence venture. A “framework” accord “builds upon the existing relationship between Tesla and xAI by providing a framework for evaluating potential AI collaborations between the companies,” said Tesla, adding that the investment agreement is expected to close in the first quarter. Tesla shares rose 1.7 percent in after-hours trading.
© 2024 AFP
