Tesla Profit Slumps Amid Lower EV Sales, AI Spending Surge

The company's core electric vehicle business has been under pressure over the past year due to increased competition and reputational challenges.Tesla's annual profit sank to its lowest level in years as the company faces an array of challenges from increased competition to reputation issues due to CEO Elon Musk's political engagements.

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The electric vehicle (EV) company on Wednesday reported that net income last year plunged 46% to $3.8 billion (€3.17 billion).

Also Read | Tesla Profit Slumps Amid Lower EV Sales, AI Spending Surge.

It marked the second year in a row of steep declines.

For the fourth quarter of last year, profits came in at $840 million, down from $2.1 billion a year earlier.

Total revenue for the year also fell about 3% to roughly $94.83 billion, marking the company's first annual decline in revenue.

A raft of challenges

Tesla's core EV business, which still accounts for most of the company's current revenue, has been under pressure over the past year.

It has faced increased competition from rivals such as China's BYD, which have rolled out newer models, often at lower prices.

President Donald Trump's administration has also scrapped a tax incentive for electric vehicles, denting sales in the US.

To defend sales, Tesla has relied heavily on discounts and incentives.

It also introduced cheaper models of its best sellers.

"They've got aging product that is less and less competitive as other manufacturers come out with new models, then there is the general brand destruction," Telemetry analyst Sam Abuelsamid told the Associated Press. "Musk‘s involvement in politics has turned off customers."

Tesla says it's in transition

But Musk urges investors to focus less on car sales and more on other aspects of the business such as its plans to introduce fully autonomous robotaxis.

The company's energy storage business is also booming. It posted strong numbers last quarter with revenues surging 25% to $3.8 billion.

Tesla is benefiting from massive demand from energy-guzzling data centers that are being built out around the US.

Musk also wants to turn Tesla from an EV maker to an AI company.

To that end, Tesla said Wednesday that it will invest $2 billion in Musk's artificial intelligence company xAI.

Investors seem to keep faith in Musk

Investors appear to have kept faith in Musk, with Tesla's stock up 9% in the past year.

After the earnings were announced on Wednesday, shares were up 2.5% in after-hours trade.

One reason the stock has held up could be because of Musk's promise to remain focused on the company after a foray into US politics.

But it's not clear whether Tesla will have his undivided attention as he has plans to take his rocket company SpaceX public this year, which could distract him.

Edited by: Louis Oelofse

(The above story first appeared on LatestLY on Jan 29, 2026 07:30 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).