NEW YORK – Tesla reported a 61% drop in fourth-quarter profits on Wednesday, attributing the decline to reduced auto sales and increased expenses as CEO Elon Musk intensifies technology investments. The results capped a turbulent year for the electric vehicle maker, marked by Musk’s controversial Trump White House involvement and a November shareholder vote approving a pay package for Musk potentially worth $1 trillion, reflecting anticipated technology breakthroughs at Tesla. Profits fell to $840 million for the quarter ending December 31, down from $2. 1 billion a year earlier, while revenues decreased 3. 1% to $24. 9 billion. The profit decline was expected following Tesla’s earlier report of lower auto deliveries in both the fourth quarter and the full year. Additional factors cited included higher restructuring costs, increased R&D spending on AI, the burden of tariffs, and declining revenues linked to emission tax credits after Trump’s environmental policy rollbacks. Musk, during a conference call, emphasized his commitment to “very, very big investments” aimed at creating “the best future, ” describing an era of abundance with thriving nature and unlimited human opportunity. CFO Vaibhav Taneja revealed that Tesla’s 2026 capital expenditure budget will exceed $20 billion, more than double the $8. 5 billion spent in 2025. Tesla plans to phase out production of its luxury Models S and X, repurposing Fremont, California plant capacity to produce humanoid robots. The company did not provide a projection for 2026 vehicle sales, noting it depends partly on overall product demand. Despite a January 2025 forecast projecting a return to vehicle sales growth, Tesla’s 2025 sales fell 9%, impacted by rising competition and backlash from Musk’s alignment with Trump and far-right figures.

However, Tesla shares rose significantly in the latter half of 2025 after Musk’s White House exit, as investors remained optimistic about the company’s growth prospects. Musk highlighted Tesla’s strengths in artificial intelligence and autonomous driving as key competitive advantages that justify its high market valuation. The company is transitioning from a hardware-centric focus to a “physical AI company. ” At the recent World Economic Forum, Musk described self-driving cars as “essentially a solved problem, ” envisioning widespread US robotaxi services by the end of 2026. He also expressed optimism about revenue growth from subscriptions to Tesla’s Full Self-Driving (FSD) program, though analysts remain cautious given past unfulfilled promises regarding autonomous driving timelines. CFRA Research analyst Garrett Nelson viewed the quarterly results as better than expected, citing revenue growth from Tesla’s energy generation and storage businesses and planned expansion projects like Cybercab slated for 2026. Nevertheless, Nelson warned of “high execution risk” as Tesla must overcome challenging EV demand and intensified competition to meet its ambitious goals and justify its lofty valuation. Tesla additionally disclosed an agreement, made on January 16, to invest $2 billion in Musk’s xAI artificial intelligence startup. This “framework” builds on the existing Tesla-xAI relationship, establishing a basis for potential AI collaborations; the investment is expected to finalize in Q1. Following the announcement, Tesla shares rose 1. 7% in after-hours trading.