While Tesla's revenue likely declined in the fourth quarter due to pressure on electric-vehicle sales, a smaller part of its business could stand out once more when the company reports earnings on Wednesday afternoon.
The "highlight" of the fourth quarter will likely be Tesla's energy-storage and -generation business, said Baird analyst Ben Kallo, who predicts that the segment will continue to grow as it has for several straight quarters.
Tesla $(TSLA)$ deployed 14.2 gigawatt hours of energy-storage products between October and December, beating a record it had set in the prior quarter. Analysts on average expect $3.72 billion in revenue from Tesla's energy business, up 21% from a year earlier, according to the FactSet consensus.
The business is expected to benefit from growing interest in AI, as major tech companies spend heavily on infrastructure like data centers. Michael Snyder, Tesla's head of energy and charging, said last year that there has been "remarkable" demand for the company's megapack batteries to support data centers.
Meanwhile, Tesla is expected to report revenue of $24.8 billion for the December quarter, down from $25.7 billion in the same period in 2024, according to estimates compiled by FactSet. Adjusted earnings per share are expected to come in at 45 cents per share, a steep drop compared to the 73 cents per share it reported for the final quarter of 2024.
Tesla is struggling to adjust to a new EV landscape following the expiration of key federal tax credits that once incentivized purchases. The Austin, Texas-based company delivered just 418,0227 electric vehicles during the last three months of 2025, a 16% drop compared to a year earlier.
And automotive gross margins excluding regulatory credits, a metric closely watched by investors, is expected to be 14.4% - lower than the two prior quarters, which would show the impact of those expired EV tax credits. Margins could decline further in the near future as Tesla ramps up deals as it did in December, when it more than doubled sales incentives for new cars, according to Kelley Blue Book.
William Blair analyst Jed Dorsheimer said that, during Tesla's earnings call with investors on Wednesday, he wants to hear more about the company's view of the energy-storage market and its plans to increase production. He pointed out in a Tuesday note that Tesla has supplied more than 600 megapacks for xAI's data center in Tennessee, referring to CEO Elon Musk's artificial-intelligence startup.
Analysts will also want to hear more about Tesla's plans to accelerate plans that are more directly related to AI, namely autonomous vehicles and humanoid robots. Much of the company's valuation is predicated on its eventual dominance in those fields.
As of Tuesday, 40% of analysts who cover Tesla's stock had a buy or overweight rating, while 38% rated it at hold, according to FactSet data. On average, those analysts had a $415 price target on the stock, below its current level near $434.
"Investors are underwriting Tesla as an AI platform with physical endpoints," Shay Boloor, chief market strategist at Futurum Equities, told MarketWatch over email. "The stock will react to whether management reinforces that trajectory or pushes it further out."
A major focus on Wednesday's call will be Tesla's plans to expand its existing ride-hailing service. Last week, the company said it had begun limited unsupervised autonomous-vehicle rides in Austin, Texas, hitting a milestone it had planned to reach at the end of December.
Wedbush analyst Dan Ives, a major Tesla bull, expects the company to deploy robotaxis in more than 30 U.S. cities this year, which would be a massive leap from the two in which it currently offers ride-hailing services. He thinks that autonomous vehicles will add $1 trillion to Tesla's valuation over the next few years.
Analysts are also looking to find out more about Tesla's timeline to launch a more advanced version of its current Full Self-Driving system. But deploying that largely depends on how much data it can collect to refine its technology.
Morgan Stanley expects the FSD take rate - or the amount of Tesla customers who choose to pay for the technology - to rise to 17% from 15% this year. The analysts are partly banking on a global expansion of FSD, which currently is available in seven countries.
Musk has said that Tesla could receive approval to begin offering FSD in Europe and fully launch the system in China in the first quarter of this year.
"We believe Tesla will own 70% of the global autonomous market over the next decade as no other company can match the scale and scope of Tesla," wrote Ives, who has a $600 price target on the stock.
The company is expected to give an update on its latest version of its Optimus robot, which Musk has said could be showed off in March and enter production in late 2026. He said last week that the humanoid robots could be sold to consumers toward the end of next year, potentially unlocking a largely untapped market.
Tesla's board is also considering an investment in xAI, which was started by Musk in 2023 and has already received a multibillion-dollar investment from SpaceX, the CEO's space-launch company. xAI's controversial chatbot, Grok, has been deployed in some Tesla vehicles and Optimus.
In the past, Musk has said his companies are "trending" toward convergence, which has been at the forefront of some investors' minds as SpaceX prepares to become a public company. Morgan Stanley's Andrew Percoco advised in a recent note that investors should look for updates on how the "Muskonomy," as he called it, could "prove symbiotic."
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