Tesla’s financial performance in the fourth quarter of 2025 has shown a notable decline, marking the most challenging year for the electric vehicle manufacturer since it started generating profits six years ago. The company reported a 16% drop in adjusted income for the last three months of the year, culminating in a staggering 46% decrease in total adjusted income for 2025. Additionally, the net income plummeted by 61% during the same quarter.
This downturn was widely anticipated as Tesla experienced its most significant year-over-year sales volume decline in the fourth quarter. Once hailed as the fastest growing and most profitable automaker worldwide, Tesla’s struggles are more pronounced amid a broader increase in electric vehicle sales globally. The decline in Tesla’s sales can be partly attributed to diminishing consumer confidence, exacerbated by backlash against CEO Elon Musk’s political engagements, particularly in the American and European markets. Furthermore, the removal of the $7,500 federal tax credit for EV purchasers in the U.S. earlier in the year led to a downturn in all U.S. EV sales.
Moreover, Tesla is facing intensified competition, particularly from Chinese manufacturers like BYD, which surpassed Tesla in 2025 to take the title of the world’s largest electric vehicle producer. Tesla’s sales drop is particularly concerning as it navigates this increasingly competitive landscape in its second-largest market, China.
Despite these challenges, Tesla’s share price has remained resilient. Following Musk’s return to the company full-time in the spring after stepping back from political engagements, the buzz around ambitious initiatives like self-driving “robotaxis” and humanoid robots has helped buoy investor sentiment. Shares of Tesla (TSLA) rose approximately 3% in after-hours trading after the announcement of plans to expand the robotaxi service to seven additional markets in the first half of the year, building on its present operations where employees serve as “safety monitors.”
The company aims for its robotaxi service to encompass half of the U.S. population by the end of 2025, though recent adjustments to its targets suggest service will reach eight to ten markets by that time. As Tesla continues to evolve and adapt to challenges, the potential for innovation in its future offerings remains a focal point for investors and industry observers alike. This situation remains dynamic, and further updates are expected as Tesla navigates these turbulent waters.