Tesla’s automotive business, long the centerpiece of its growth story, is showing signs of strain. In its latest earnings report, Tesla revealed a 20% year-over-year decline in automotive revenues—a stark contrast to the rapid growth it posted over much of the past decade. This isn’t just a one-off quarter, either. It reflects deeper challenges facing Tesla’s electric vehicle (EV) operations, including intensifying competition, softening consumer demand, and margin pressure. Based on current trends, I anticipate that these headwinds will persist throughout the remainder of 2025—and quite possibly into 2026.
However, as Tesla’s car business struggles, other segments are rising in importance. Particularly, Tesla’s energy division and its emerging robotics initiatives could become the company’s next major growth engines. In this article, we’ll explore why Tesla's non-automotive businesses are increasingly critical to its future, what investors should make of Elon Musk’s ambitious forecasts, and how the shifting business mix might ultimately make Tesla a stronger company over the long term.
Mounting Pressures on Tesla's Automotive Segment
Tesla’s automotive challenges are multi-faceted.
First, competition in the EV space has exploded. Virtually every major automaker—from Ford and General Motors to Volkswagen and Hyundai—now offers a growing portfolio of electric vehicles. Meanwhile, Chinese EV companies like BYD and Nio are producing competitively priced models that are gaining traction both domestically and abroad.
Second, consumer demand appears to be softening, especially in Tesla’s core markets. High interest rates have made car loans more expensive, while the expiration of certain tax credits and incentives in various countries has made EVs relatively less attractive compared to traditional vehicles.
Third, Tesla’s frequent price cuts over the past year have compressed its industry-leading margins. Although the company once boasted enviable automotive margins of 20% or more, those figures have slipped significantly as Tesla has sought to maintain volume by lowering prices.
The result is a perfect storm of slower revenue growth, falling margins, and intensifying competition—all of which threaten Tesla’s dominant position in the EV market.
Bold Promises in Robotics: The Optimus Bet
In response to these pressures, Tesla is increasingly emphasizing its investments beyond cars. One of the most headline-grabbing initiatives is the Optimus humanoid robot program.
Tesla recently stated that it expects to have thousands of Optimus robots operational within its factories by the end of this year. Elon Musk even projected that Tesla could ramp up production to one million robots annually within four to five years.
While these forecasts grab attention, they should be treated with caution. Musk has a long history of setting highly ambitious targets—often failing to meet them on schedule. From full self-driving cars to autonomous robotaxis to the mass production of the Cybertruck, Tesla’s timelines have frequently slipped, sometimes by years.
Realistically, scaling a humanoid robot business to one million units per year within half a decade would be unprecedented. No other company, including robotics leaders like Boston Dynamics, has approached such volumes. Even optimistic projections from leading robotics researchers suggest that general-purpose humanoid robots remain at least a decade away from mass-market viability.
Nonetheless, Musk’s audacious goals serve an important internal purpose: motivation. They are designed to inspire Tesla engineers and employees to work aggressively toward breakthroughs, even if the final results fall short of initial promises.
From a management perspective, this tactic has worked remarkably well for Tesla over the years. Lofty goals, even when unmet, have catalyzed technological advancement, accelerated timelines, and fostered a culture of relentless innovation. However, investors should avoid taking such projections at face value and instead view them through the lens of internal morale-boosting, rather than realistic business forecasts.
Tesla’s Energy Business: A Quiet Powerhouse
While the robotics effort is still in early development, Tesla’s energy division is already delivering tangible results—and may be the company's most underappreciated asset.
Tesla’s Megapack product, a large-scale battery storage solution, is seeing soaring demand from utilities and large energy users. As the world transitions toward renewable energy, grid storage has become a critical bottleneck. Solar and wind energy are intermittent by nature, meaning storage solutions are essential for ensuring a stable, reliable power supply.
But the near-term demand surge for Megapacks isn’t just about renewables—it’s about artificial intelligence. The construction of AI-optimized data centers is creating a new, massive demand for energy. Major technology firms like Amazon, Microsoft, Alphabet, and Meta are pouring an estimated $200 billion into new AI data centers by 2025. These next-generation data centers consume far more electricity than their predecessors, putting unprecedented strain on the power grid.
In fact, energy shortages are already beginning to constrain AI build-outs. Some data center projects have been delayed or canceled simply because local utilities cannot guarantee sufficient electricity supplies. Tesla’s Megapack offers a solution: it enables utilities to operate closer to full capacity by storing excess power during low-demand periods (like nighttime) and dispatching it during peak demand hours.
Tesla explains that if power plants could operate at peak production for 24 hours rather than fluctuating between half or quarter loads, overall energy output could effectively double without building new plants. The ability to "buffer" energy use in this way represents a massive unlock for the power industry—and Tesla is positioning itself right at the center of this transformation.
With utilities scrambling for solutions and AI firms desperate for power, demand for Tesla’s energy products is poised to accelerate sharply over the next several years.
The Shift in Tesla’s Business Model
As Tesla’s automotive revenue declines and its energy division scales, the company's overall business mix is changing.
Historically, Tesla was overwhelmingly an automotive company, with vehicles representing more than 80% of its total revenues. But that dominance is fading. In recent quarters, energy and services have grown rapidly, while automotive revenue has stagnated or declined. If current trends continue, Tesla’s revenue profile will become much more diversified—and less dependent on car sales.
This transition could ultimately strengthen Tesla’s financials. The automotive industry is brutally competitive and capital-intensive, with notoriously thin margins. By contrast, energy storage solutions and software-related services (such as Full Self-Driving subscriptions) generally offer higher margins, recurring revenue streams, and more scalable growth.
Tesla’s pivot towards higher-margin, more defensible businesses mirrors a broader trend seen across successful tech companies: diversification away from hardware into software, infrastructure, and services.
If Tesla can successfully navigate this transition, it could emerge not just as an automaker, but as a diversified energy and technology platform.
Conclusion: A Company in Transition
Tesla’s automotive business is clearly facing significant challenges, and those challenges are unlikely to dissipate quickly. However, the company’s investments in energy and robotics represent new frontiers with significant growth potential. Tesla’s ability to pivot, innovate, and build entirely new business lines is part of what makes it such a fascinating—and at times polarizing—company for investors.
For long-term investors, the key is to recognize that Tesla is not just an electric car company. It is a technology company applying its expertise across energy, robotics, and artificial intelligence infrastructure. As the automotive segment shrinks in relative importance, Tesla’s future will be increasingly tied to these newer, faster-growing business lines.
While the path forward may be bumpy, the long-term opportunities for Tesla remain vast—and may extend well beyond the road.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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Comments
While it has worked wonders in SpaceX and the energy storage business, it has failed to move forward in the EV business it pioneered.
The failure of Cybertruck exemplifies Musk approach to everything, my way or the highway. The only word to describe Tesla is promise. It's built on promises but since the rally to $488 post election, everything is falling apart post DOGE. From Telsa's brand to plummeting sales, promises of Cybercabs rollout in 2025 appears more akin to a Waymo style trial, the delayed promise of Tesla Semi since 2017, and $10,000 Optimus robots everywhere.
My take is that the market is not valuing at it arrives but ascribing a huge premium based on promises doesn't seem right to investors.