Tesla reported a steep decline in annual profit Wednesday as it cut car prices to try to fend off growing competition from established automakers like Volkswagen and newer rivals from China.
The Chinese carmaker BYD has surpassed Tesla as the largest manufacturer of electric vehicles globally. In Europe, Volkswagen now sells more electric vehicles than Tesla.
Falling car sales have taken a toll on Tesla’s net profit, which was $3.8 billion for the year, down from $7.1 billion in 2024. Profit in the fourth quarter fell to $840 million from $2.1 billion a year earlier.
The annual decline was the second consecutive drop. But investors may not be very bothered by it because they do not value Tesla the same way they do other car companies.
The company’s shares are trading near a record high because shareholders believe that Tesla’s chief executive, Elon Musk, will deliver on his promises to dominate the market for self-driving taxis and for robots capable of doing complex tasks better than humans.
Mr. Musk said last week that Tesla would begin selling humanoid robots by the end of the year. In Austin, Texas, the company has begun offering paid rides in a small number of autonomous taxis that do not have human safety monitors aboard.
This week Mr. Musk reiterated that Tesla would begin producing the Cybercab, a two-door vehicle designed to operate fully autonomously, in April.
Mr. Musk has a long history of making overly optimistic predictions about when products will be ready. And Tesla is far behind Waymo in the nascent self-driving taxi business. Waymo, a division of Alphabet, Google’s parent company, offers driverless service in Austin and five other U.S. cities.
On the stock market, Tesla has a market capitalization of $1.36 trillion based largely on the premise that Tesla could quickly release millions of self-driving taxis if it can perfect the autonomous driving technology.
In theory, a software update could make Teslas already on the road into robot taxis, or Robotaxis, as Tesla calls them. With factories in California, Texas, China and Germany, Tesla would also be able to quickly churn out many more taxis.
Waymo has “more commercial miles than Tesla,” said Tasha Keeney, director of investment analysis at Ark Invest, an investment firm that is optimistic about the company’s prospects. “But Tesla has a scale that Waymo does not have.”
Still, investors could become impatient if Mr. Musk does not begin to deliver, analysts said. “For the stock to further outperform, Tesla will need to show clear progress on its efforts in Robotaxi, FSD, and Optimus,” analysts at Barclays said in a note this week, referring to Tesla’s Full Self-Driving software and Optimus humanoid robots.
Investors have also looked past Mr. Musk’s outspoken support for right-wing politicians and causes, which has offended many car buyers and contributed to its lackluster sales. Electric vehicle buyers tend to be liberal or centrists.
Tesla said this month that it delivered 1.64 million cars worldwide during 2025, down from nearly 1.8 million in 2024. In the United States, Tesla sold 589,000 vehicles last year, a 7 percent decline, according to Cox Automotive, a research firm.
Tesla faces a number of challenges. Republicans in Congress and President Trump eliminated tax credits of up to $7,500 for electric vehicles bought after Sept. 30, pushing sales down in the last three months of last year.
Competition is also intensifying. This year Honda, BMW, Volvo, Mercedes and other automakers will begin selling electric vehicles that in many cases charge more quickly and can travel further on a full battery than Tesla’s most popular models.
Tesla has not offered a completely new model since the Cybertruck, which was released in 2023, and that vehicle has sold poorly. Last year Tesla sold about 20,000 Cybertrucks in the United States, according to Cox, or about 50 percent fewer than in 2024.
In October Tesla began selling lower-priced versions of its Model 3 sedan and Model Y sport utility vehicle. But those vehicles, with a starting price of as little as $37,000, probably earn the company smaller profits.
Tesla was once one of the most profitable automakers. But Barclays analysts estimated that Tesla’s pretax profit margin in 2025 was about 6 percent, less than half as much as Toyota Motor.
Jack Ewing covers the auto industry for The Times, with an emphasis on electric vehicles.
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