Tesla ( TSLA -0.58%) has experienced significant fluctuations this year, as investors weigh concerns over declining car sales against growing enthusiasm for autonomous driving technology. In addition to manufacturing electric vehicles, Tesla also offers energy storage products and operates a worldwide charging infrastructure. However, the main narrative influencing the stock is Tesla’s effort to bring self-driving capabilities to market. Currently, shares are trading around $420, having rebounded sharply in recent sessions due to renewed excitement surrounding Robotaxis and advances in AI.
The direction Tesla takes over the upcoming year won’t be determined by a straightforward forecast or a single piece of data. Should autonomous ride-hailing become established, it could drive a surge in higher-margin service revenue layered atop Tesla’s existing customer base, which explains Wall Street’s recent bullishness. If this does not materialize, Tesla will remain a cyclical auto manufacturer committing substantial resources to ambitious, costly initiatives. Thus, when asked where Tesla will stand in a year, the most accurate response is that outcomes could differ dramatically.
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Recent results show mixed momentum
Results through June reflect the contrasting trends within Tesla’s divisions. In the second quarter of 2025, total revenue dropped 12% year over year to $22.5 billion, largely due to weaker automotive sales, although the energy storage business continued to perform well.
Margins paint a similar picture. The combined gross margin for automotive and “services and other” segments declined to 15.4% from 17.1% the previous year, impacted by price cuts and reduced regulatory credit income. In contrast, energy generation and storage gross margin increased significantly, rising to 30.3% from 24.6%, helped by lower production costs. Operating expenses remain high as the company boosts investment. Spending on research and development jumped, with management focusing on artificial intelligence, autonomous driving, and expanding the product lineup. R&D expenses reached about 7% of revenue this quarter, up from around 4% a year earlier.
Despite the increased spending, Tesla’s liquidity position remains robust. The company closed the quarter with $36.8 billion in cash, cash equivalents, and investments, backed by $4.7 billion in operating cash flow during the first half of 2025. This financial strength allows Tesla to continue investing even during periods of softer demand.
A wildcard
The biggest variable is autonomy. In Tesla’s second-quarter 10-Q, management stated, “the launch of our Robotaxi service in June 2025 will unlock significant business growth to advance a service-driven business model.” The company also reports building out the necessary infrastructure as operations scale up. A paid pilot is currently underway in Austin, and Tesla has publicly positioned its upcoming “Cybercab” as the dedicated vehicle for future fleet expansion. Success in this area could dramatically reshape the business—potentially establishing a high-margin network service and attracting new buyers interested in vehicles that can generate passive income.
However, substantial risks remain over the next year. Achieving autonomy depends on both technological breakthroughs and regulatory approval; industry timelines have frequently slipped, and competitors such as Alphabet’s Waymo and Amazon’s Zoox are also advancing, which adds to the competitive landscape and influences public opinion. Meanwhile, profitability in Tesla’s core car business is under pressure, so major investments in self-driving technology, new vehicle lines, and humanoid robots could continue to weigh on margins if demand does not pick up. Notably, deferred revenue—largely from Full Self-Driving features—rose to $3.75 billion by the end of the quarter, highlighting that a portion of the value investors expect is still tied to delivering future capabilities.
Valuation adds another layer of uncertainty. With trailing 12-month revenue near $93 billion, Tesla’s market capitalization reflects a lofty price-to-sales ratio of roughly 15 for a manufacturer facing tighter car margins—unless autonomous services take off. If Robotaxi operations expand beyond current pilots, Tesla could transition toward a platform model, earning higher incremental margins from software and ride services, making today’s valuation more justifiable. Should adoption lag, however, investors may reconsider the premium being paid for what could become a slower-growing automotive and energy company, even with a solid cash position and a growing energy storage division.
Overall, it’s best to think of the coming year for Tesla as a range of possibilities. At the optimistic end, scaling up an autonomous network and increasing vehicle orders could send profits and the share price soaring. In a middle scenario, modest progress with autonomy and a return to steady vehicle sales growth might keep the stock trading within a range as earnings gradually improve. On the downside, limited progress with self-driving and ongoing weak demand could result in thin margins and a vulnerable share price. This is why Tesla remains a speculative pick most appropriate for investors willing to embrace significant risk: the potential gains from successful autonomy are enormous—but the losses could also be substantial if those ambitions do not materialize.
