Tesla reported a sharp decline in profitability for 2024, missing key financial expectations and experiencing its first annual sales drop in over a decade. Despite CEO Elon Musk’s optimistic projections for future growth, the company’s latest earnings report has raised concerns among investors and industry analysts.
Tesla’s fourth-quarter net income fell by as much as 71 percent to $2.3 billion compared to the same period in 2023. The company attributed much of this decline to an “unfavorable comparison”: a $5.9 billion one-time noncash tax benefit recorded in the fourth quarter of 2023.
However, excluding that benefit, Tesla’s gross margin still slipped to 16.3 percent, down from 19.8 percent in the preceding quarter, primarily due to aggressive pricing strategies and sales incentives. However, that percentage remains strong compared to the crisis-affected margin drops at other car makers. Mercedes, for instance, forecasts twice as low at 7.5% to 8.5%.
The silver lining of the energy business
The underlying problem is a decline in vehicle deliveries to 1.79 million units, down from 1.81 million in 2023 – a rare slip for a company that has historically championed aggressive growth.
This reverse was driven by intensifying competition in China, softening EV demand in the U.S., and a lack of new product offerings—with its bestselling Model Y up for a facelift as presented at the beginning of 2025. As such, the company’s automotive revenue fell 8 percent to $19.8 billion. Its energy business provided a silver lining, with revenue more than doubling to $3.1 billion.
Following the earnings announcement, Tesla’s share price initially fell by 5 percent. The selloff was sparked by disappointment over the declining margins. Investor sentiment also took a hit due to Tesla’s continued reliance on price cuts to drive sales, a strategy that erodes profitability.
Musk answered that he expects the automotive business to return to growth this year. But many uncertainties remain, not the least his political support for extreme right-wing movements, which has already triggered a wave of German companies ditching Tesla from their car policies. It remains to be seen how much of the price and image devaluation the brand can take.
Not incentives, but range is the problem
During the earnings call, Musk was also asked about the nascent unwinding of EV incentives in the U.S. He avoided the question by stating that only range is a roadblock for EV adoption, a hurdle that has been overcome, in his opinion.
Rather than focusing on immediate solutions to the company’s core automotive challenges, he spent much of the earnings call promoting long-term visions of robotaxis, AI advancements, and automation—which has become a standard investor story for the company.
Musk reaffirmed that Tesla’s first robotaxi service (its first accurate unsupervised self-driving software system) will launch in Austin, Texas, by mid-2025. As for the Cybercab, its first dedicated autonomous ride-hailing car, production was confirmed by 2026.
The Tesla CEO doubled down on his belief that self-driving technology will revolutionize transportation, dismissing concerns about the feasibility of a fully camera-based autonomous system. Unlike competitors such as Waymo, which employ Lidar and radar technology, Tesla continues to rely solely on cameras – a decision that has been met with skepticism from industry experts.
Regaining momentum
Despite Musk’s bullish predictions, Tesla has struggled to deliver on its autonomy promises. The company’s Full Self-Driving (FSD) software still requires driver supervision, and Tesla has yet to achieve the level of regulatory approvals that would enable fully autonomous operation. Analysts worry that Tesla’s shift toward AI and automation is a strategic distraction from its weakening core business.
Tesla is now looking to regain momentum in 2025 by launching more affordable EVs, though details remain scarce. The company has stated that these vehicles will be based on a modified version of an existing platform, leading some analysts to speculate that cheaper versions of the Model 3 and Model Y could hit the market next year.
But there are still rumors, sparked by the company’s ex-boss of the Shanghai Gigafactory Song Gang, that the Model 2 is back on the table.
The murky waters Tesla is navigating shouldn’t distract from the fact that the company remains profitable and has grown its cash reserves to $36.6 billion even in the slow year 2024, providing a thick financial cushion. However, with declining margins, rising competition, and an unpredictable CEO, the company will surely be in a different phase of its development arc.
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