Tesla faced a challenging year in 2025, marking its first annual revenue decline. Sales dropped as a result of shifting consumer opinions about CEO Elon Musk’s political actions and decisions made during President Donald Trump’s administration.
In the fourth quarter, Tesla’s revenue fell by 3% to $24.9 billion, slightly above analysts’ expectations. Overall, the company reported a total of $94.8 billion in revenue for the year, down 3% from 2024. Adjusted net income for the fourth quarter was $1.8 billion, down 16%. However, this number still exceeded Wall Street forecasts. Shares rose by 3% in after-hours trading.
Tesla’s struggles coincided with Trump’s cancellation of several U.S. electric vehicle incentive programs, leaving customers in North America and Europe dissatisfied. Many voiced concerns over Musk’s political preferences, affecting sales. In light of declining vehicle demand, Musk announced plans to halt production of the luxury S and X models. Instead, he aims to pivot the California factory to focus on the Optimus robot, emphasizing a shift toward an autonomous future.
“This is a necessary step as we embrace the era of AI,” Musk remarked.
Tesla has rebranded itself as “a physical AI company,” a shift that came after a shareholder vote supported a $2 billion investment in Musk’s xAI. While the proposal garnered more yes votes, many shareholders abstained, indicating divided opinions on Musk’s vision.
SpaceX, another venture of Musk, has already invested $2 billion in xAI, reflecting the broader push towards AI technology amid rising costs in the industry.
In 2025, Tesla relinquished its status as the world’s largest electric vehicle manufacturer, falling behind China’s BYD. The company delivered 418,227 vehicles in the last quarter—a 16% decrease from the previous year and below projected numbers. Sales in Europe plummeted, with new registrations dropping 21%, impacted by stiff competition from both Chinese and Western automakers.
Additionally, revenue from regulatory credits—a source of income for Tesla when selling to companies that struggle with emissions—fell 22% to $542 million. This decline came after the U.S. government removed penalties for failing to meet emissions standards, reducing the viability of such credit trading.
Looking ahead, Tesla plans to expand its Cybercab service to seven more U.S. cities by summer, having already launched in San Francisco and Austin. Musk is optimistic about gaining regulatory approval for Tesla’s “full self-driving” software in Europe and China by next month.
In a recent development, the company disclosed that full self-driving subscriptions had risen by 38% to 1.1 million. However, this technology still requires human oversight, drawing scrutiny from traffic safety regulators.
Despite these setbacks, Musk has maintained significant influence over Tesla, successfully navigating various disputes over his compensation. Shareholders approved a new stock deal potentially worth $1 trillion if he meets ambitious performance targets. Furthermore, a Delaware court reinstated a controversial $56 billion pay package initially deemed excessive.
As of now, Tesla’s operating margin stands at 5.7%, a decline from 6.2% the previous quarter.
For more detailed information on Tesla’s financials and strategies, you can read the latest report by CNBC.
