Tesla Inc. concluded 2025 on a contradictory note, with its stock market valuation skyrocketing even as its core electric vehicle business showed signs of strain. While investors enthusiastically backed CEO Elon Musk's ambitious vision for a self-driving future, convincing actual car buyers proved to be a more significant challenge for the world's most valuable automaker.
A Tumultuous Year of Highs and Lows
The year 2025 was exceptionally turbulent, even by the volatile standards associated with Tesla and its chief executive. The company's vehicle sales began poorly, hampered by two major factors. First, Tesla was retooling production lines at all its auto plants for the redesigned Model Y, its best-selling vehicle. Second, a severe backlash erupted against Musk's political work for former US President Donald Trump.
By early April, as Musk publicly clashed with administration officials over tariff policies, Tesla's stock had nosedived, losing 45% of its value since the start of the year. The remarkable recovery was ignited when Musk shifted focus back to Tesla, championing a long-held goal: launching a ride-hailing service using vehicles he promises will eventually be fully autonomous.
In June, Tesla rolled out an invite-only Robotaxi service in Austin, Texas. Model Y cars, supervised by human safety operators, began ferrying passengers. Despite the vehicles breaking traffic laws on the first day—prompting scrutiny from a federal regulator—investors largely ignored the safety concerns. The rally gained further momentum in September when Tesla's board proposed a new, staggering compensation package for Musk, potentially worth up to $1 trillion based on milestones like deploying millions of robotaxis.
The comeback was stunning. From its low point in April to a record closing high on December 16, Tesla added over $915 billion in market capitalisation in just over eight months.
The Reality Check: Falling Deliveries and Market Challenges
While investors were captivated, the reality in showrooms told a different story. Tesla is expected to report it delivered approximately 440,900 vehicles in the fourth quarter of 2025, marking an 11% decline from the same period a year earlier, according to Bloomberg data. In an unusual move, Tesla itself published an analyst estimate average predicting an even steeper 15% drop.
Wall Street's outlook for 2026 has also dimmed. Analysts who two years ago forecast Tesla delivering over 3 million vehicles in 2026 have now slashed that average estimate to roughly 1.8 million.
Garrett Nelson, an equity analyst at CFRA Research, noted, "Tesla investors are focused on how the company might look five, 10, 15 years down the road, and really discounting what they see in the near term. The question is, can they maintain that, especially when we think headwinds are going to become more apparent in the financials?"
Consumer adoption of Tesla's Full Self-Driving (FSD) technology, which requires human supervision, remains a hurdle. The company faces allegations in California of misleading customers about its cars' automated capabilities, which could lead to a 30-day suspension of its sales license in the state early this year.
In the critical Chinese market, Tesla's strategy of differentiating itself with driver-assistance features is struggling. Competitors like BYD Co. and Xiaomi Corp. now offer similar systems as standard. Analysts predict BYD will outsell Tesla in global battery-electric vehicle sales for a fifth consecutive quarter, fueled by its dominance in China and growing momentum in Europe, where Tesla's FSD lacks regulatory approval.
Navigating the Road Ahead in 2026
After what is anticipated to be its second consecutive annual sales decline, Tesla confronts more obstacles in 2026. The US government has ended federal tax credits for EV purchases and leases, a move Musk warned could result in "a few rough quarters." However, some analysts see a potential upside as this policy shift has caused major traditional automakers, like Ford Motor Co., to scale back multibillion-dollar investments in unprofitable EV projects.
Musk ended the year building hype for the Cybercab, a futuristic two-seat compact car with butterfly doors. Although the 2024 prototype lacked a steering wheel and pedals, Chairperson Robyn Denholm indicated Tesla would include these components if required by regulators.
Gene Munster, Managing Partner at Deepwater Asset Management, summarised the investor sentiment: "Investors have fully bought into his autonomous vision, which comes at a good time, as Tesla’s EV business will likely be flat to up 5 percent next year. At this point, Elon only needs the car business to stabilize over the next year to satisfy investors."
The central question for 2026 is whether Tesla can bridge the growing gap between its sky-high valuation, built on a future of autonomous taxis, and the immediate realities of a competitive and slowing electric vehicle market.
