The first price drop of 2025 among automakers came from an unexpected player: Tesla.
A limited-time insurance subsidy of RMB 8,000 (USD 1,120) and a five-year, interest-free financing offer for the Model 3 set the market ablaze. On the first working day of the year, competitors like Xpeng Motors, Li Auto, and IM Motors quickly followed suit, making the automotive sector unusually lively from the start.
After a relatively quiet 2024, Tesla appears to be making a statement: it’s ready to reclaim center stage.
Yet, the past year wasn’t smooth sailing for the EV giant. There were no new models, no groundbreaking developments, and even the much-anticipated launch of the Cybercab fell flat, leaving more disappointment than excitement. That stagnation showed in Tesla’s financials.
In 2024, Tesla reported total revenue of USD 97.69 billion, a mere 1% year-on-year increase. Vehicle deliveries fell by 1% to nearly 1.79 million, marking the company’s first sales decline in a decade. Worse, its net income plunged 53% year-on-year to USD 7.09 billion—its first profit drop in seven years.
Despite weak earnings and sluggish deliveries, Tesla’s stock price rose the day after its financial results were released. The reason? Elon Musk’s grand vision.
Musk has made it increasingly clear that his ambitions stretch beyond car manufacturing. His focus is shifting toward artificial intelligence, autonomous driving, and the humanoid robot Optimus. During Tesla’s Q4 earnings call, he laid out bold promises: a fully autonomous, driverless taxi service in Austin, Texas, by June, and Optimus robots operating within Tesla’s facilities before the year’s end. These ambitious targets were enough to keep investors optimistic.
With 2025 shaping up to be a pivotal year, Tesla is betting on a return to growth.
Margins still under pressure, but the worst may be over
Following a brief rebound in Q3 2024, Tesla’s profits were back on the decline in the fourth quarter.
The company posted a gross margin of 16.3% for Q4—falling short of analysts’ expectations of 18.9%. Even though Tesla set a new quarterly sales record with 496,000 vehicles sold, its profitability remained under strain.
Revenue from Tesla’s automotive business stood at USD 19.8 billion in Q4, marking an 8% year-on-year decline. This figure includes USD 692 million in carbon credit sales, meaning the actual gross margin for its core automotive business was just 13.6%.
Tesla revealed in its earnings report that it had managed to lower per-unit production costs to below USD 35,000. However, these cost reductions were not enough to offset the impact of aggressive price cuts.
At the same time, Tesla’s expenditures continued to rise. The company ramped up R&D spending, particularly in AI, leading to higher operating expenses. As a result, Tesla’s Q4 operating profit came in at USD 1.583 billion, down 23% from USD 2.064 billion in the same period the previous year.
In Q3 2024, Musk had projected that Tesla’s vehicle sales would grow by 20–30% in 2025. However, during the latest earnings call, he merely stated that Tesla expected sales to return to positive growth—without committing to a specific target.
This signals ongoing uncertainty surrounding Tesla’s automotive business. Even Musk, known for his bold statements, refrained from making aggressive forecasts.
Since 2023, Tesla’s quarterly deliveries have remained stable in the 400,000–500,000 range, despite multiple price cuts and the launch of an updated Model 3. The company has yet to surpass the 500,000-unit threshold in a single quarter.
To achieve meaningful growth in 2025, Tesla is pinning its hopes on the new Model Y.
In 2024, the Model Y retained its title as the world’s bestselling car, proving its enduring competitiveness despite remaining largely unchanged for five years.
In China, the Model Y faces fierce competition, with several domestic brands launching rival models in an attempt to challenge Tesla’s dominance. None, however, has managed to dethrone the Model Y as a market leader.
The refreshed Model Y, launched on January 10, reportedly received 50,000 orders on its first day alone. With deliveries set to begin in March, Tesla’s return to sales growth seems all but inevitable.
Caption: Photo of Tesla’s Model Y electric vehicle. Image courtesy of Tesla.
Beyond its automotive business, Tesla’s energy division is emerging as a key driver of growth.
The company reported Q4 revenue of USD 3.061 billion from its energy generation and storage segment—a 113% year-on-year surge—accounting for 11.9% of total revenue for the quarter.
Tesla’s Shanghai “megafactory,” built to manufacture energy storage batteries, was completed at the end of December 2024 and began production on February 11. The company expects energy storage output to ramp up throughout Q1.
With Tesla forecasting at least 50% growth in its energy business in 2025, this segment is steadily becoming a cornerstone of the company’s future expansion.
After a lackluster 2024, Tesla is showing signs of renewed momentum. Strong demand for the new Model Y and the continued expansion of its energy business suggest the company may finally be emerging from its slump.
Tesla’s focus areas for 2025
Tesla is set to ramp up efforts in three key areas this year, each of which could define its next phase of growth.
First, the long-rumored USD 25,000 Model Q is finally expected to launch in 2025.
Tesla confirmed during its earnings call that a more affordable model will debut in the first half of the year, broadening its lineup.
Recent leaks suggest the Model Q will be unveiled on June 25 with a price tag under USD 30,000. In China, it could be priced around RMB 150,000 (USD 21,000) or possibly as low as RMB 140,000 (USD 19,600), potentially making it a major volume driver.
However, the competitive landscape has shifted. Models like Xpeng’s Mona M03 and GAC’s Aion RT have already pushed prices for A-segment electric sedans down to RMB 120,000 (USD 16,800). Even with Tesla’s brand appeal, the Model Q’s path forward won’t be straightforward.
Second, Tesla’s “Full Self-Driving” (FSD) software remains a key differentiator.
Musk has promised that Tesla will launch an unsupervised, fully autonomous driving service in Austin by June 2025. The company is also in discussions with other automakers about licensing FSD technology.
Third, Musk sees Optimus as Tesla’s next big breakthrough.
The company aims to ramp up production to 1,000 units per month in 2025, with a long-term target of scaling up to 1 million robots per year. External deliveries of Optimus are expected to begin in late 2025, marking Tesla’s official entry into the commercial robotics market.
Musk has described 2025 as potentially “the most important year in Tesla’s history.” With so much in the pipeline, he might be right.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Han Yongchang for 36Kr.