Tesla’s gross margins, once close to 30%, fell to just 16% in the last quarter. Gross margins in its core auto segment were down to just 12%, or far worse than South Korea’s Hyundai Motor Co, which has gross margins of 19%, Japan’s Toyota Motor Corp, with gross margins of 18%, and BMW, whose gross margins are around 17%. Until recently, Tesla’s strong gross margins were supported by the scale of its gigafactories, direct-to-consumer sales rather than dealerships that most other carmakers rely on, and minimal marketing costs. More recently, those advantages have been eroded by aggressive price cuts, rising competition from Chinese makers such as BYD Co overseas, Hyundai and Volkswagen EVs in the US, and shifting demand.
Don’t blame it all on tariffs because, as a vertically integrated US-based manufacturer, Tesla is the single-largest beneficiary of tariffs among global carmakers, with or without the recent tariff exemptions for makers of cars and their components. Tesla’s market share has fallen to 6.5% of EV sales in China. Its main rival, EV giant BYD, now has a 30% share of EVs sold in that country.
BYD pulled ahead of Tesla in EV deliveries for the second straight quarter, shipping 416,000 vehicles in the first quarter, or 80,000 more than Tesla. Five years ago, BYD sold just a fraction of the EVs that Tesla did. Most of BYD’s early models were either hybrid or internal combustion engine cars. Now, it is going all-electric. BYD also has deep vertical integration, local supply chains and a global footprint, which allows it to churn out affordable EVs with cutting-edge features. Its US$18,000 SUV ships with Advanced Driver Assistance Systems, or ADAS. Its new five-minute charging battery is way ahead of anything Musk has delivered in fast charging. Tesla may still lead in brand value, but BYD is ahead in affordability, execution and scale, particularly in emerging markets, where Tesla barely competes.
Musk put a positive spin on the horrendous earnings report. He was leaving his job as head of DOGE, or Department of Government Efficiency, having completed 100 days in office, and starting from May 1, was “allocating far more of my time to Tesla,” he said. What he did not publicly say was that Tesla’s board has been urging him to spend more time with the carmaker than trying to find ways to make the US government more efficient. Tesla denies that the board had hired headhunters to actively search for a replacement CEO.
See also: Apple selling corporate bonds for the first time since 2023
Musk is in no danger of being pushed out of his iconic EV company the way iPhone maker Apple Inc’s Steve Jobs was once ousted from the firm he co-founded, only to return a decade later to lead it to greater heights. Although Musk now owns just 12.7% of the firm, the board is full of friends and fans. For one thing, his younger brother Kimbal also sits on the board. Other board members include James Murdoch, the estranged son of billionaire media mogul Rupert Murdoch, whose Fox News channel is a key propaganda tool for President Trump.
If there is one clue as to what the EV maker’s board might be up to, it has to be the sale of Tesla shares by Robyn Denholm, its Australian-born chairman. She has aggressively sold US$150 million of her shares in recent months, or almost her entire Tesla stake. If Denholm steps down, Musk would most probably be installed as chairman. It is a safe bet that he would likely remain a hands-on leader, whatever post he holds.
Why is Tesla so special?
If you ask Musk, or indeed one of his 220 million followers on social media platform X, which he also owns, you will be told that Tesla is not a car company like Ford, Toyota or BMW but actually a tech company. Cars are just a means to an end at Tesla. They give Musk the cash flow to invest in driverless Cybercabs, which will begin operating in Austin, Texas, next month with about eight driverless taxis. Google’s Waymo has been operating more than 800 robotaxis in San Francisco, Los Angeles, Phoenix and Austin, and expects to launch in several other US cities, including Atlanta, later this year. Waymo’s autonomous fleet, on the other hand, does over 200,000 paid rides per week.
See also: Trump says he would give TikTok another extension if needed
The cash flow from EVs also allows Musk to invest in humanoid robots. Morgan Stanley projects humanoids could be a US$5 trillion market by 2050, far bigger than automobiles or, indeed, the entire global transport sector. Cathie Wood, the tech fund manager who runs ARK Invest, believes Tesla is, at heart, a data company. It has a treasure trove of data that can help grow businesses such as humanoid robots and driverless Cybercabs and catapult the company into a leading artificial intelligence, or AI, player.
Tesla crossed 3.5 billion miles driven using supervised Full Self-Driving, or FSD. That data advantage is a cornerstone of its autonomous vehicle plans. Tesla vehicles already autonomously drive themselves from factory lines to outbound logistics lots in the US. Tesla is also the main beneficiary of the Trump administration’s recent plans to accelerate the deployment of self-driving vehicles by exempting some from specific safety requirements and relaxing rules on reporting safety incidents.
A mounting backlash over Musk’s role as Trump’s sidekick and the administration’s chief hatchet man, yielding a chainsaw to cut waste and make it efficient, isn’t helping Tesla. Protestors have targeted Tesla showrooms across the US and Europe and vandalised its vehicles and property. Tesla buyers in the US are mostly affluent, college-educated and liberals who loathe Trump and Musk. California, the most liberal of America’s 50 states, was by far Tesla’s biggest domestic market. Its market share in the state has fallen to 44%, down from 56% a year ago.
That dramatic plunge is being seen as a warning sign of deeper brand erosion. Musk’s recent annual shareholder letter conceded that “changing political sentiment” would likely hit Tesla’s demand. Wedbush Securities’ tech analyst Dan Ives predicts that Musk’s return from Washington is unlikely to offset the “brand damage caused over the past few months”. “Some of the damage will be stained forever in Europe and the US,” Ives, once a big Tesla and Musk fan, claimed in a recent report.
Yet, even as EVs have languished, Tesla’s other businesses, particularly energy generation and storage, have been doing well alongside the services segment. Energy and services accounted for 28% of the company’s revenue, up from 18% last year. Their contribution to gross profit is growing, too. The energy business was actually the firm’s highest-margin segment, with gross margins of 29%. Tesla’s supercharging business has done well, too. It installed 1,800 Supercharger stalls in the last quarter.
The company’s biggest bet, apart from EVs and Cybercabs, is its humanoid robot, Optimus. Tesla has begun ramping up production of Optimus and has announced plans to build up to 5,000 units this year, scaling to 50,000 next year. It will deploy a few thousand humanoids in its own giga-factories later this year. If you have watched videos of Optimus on YouTube, you might have noticed that the bots now walk more like we humans do. Tesla needs to bring down the cost of humanoids to make them more affordable.
Musk wants a humanoid that costs no more than US$20,000. That is doable, but it would have to be made in China with Chinese components. Even though he may have left his position as DOGE chief, the optics of getting Optimus made in China would not look good as long as Trump is in office. Musk believes Optimus could eventually surpass Tesla’s car business. That is a long shot, but as Tesla starts churning out more humanoids, the focus of investors will shift away from EVs and Cybercabs and more to robots, which would change the way Wall Street looks at Tesla.
Sink your teeth into in-depth insights from our contributors, and dive into financial and economic trends
Musk’s total current net worth is US$360 billion. Of that, less than a third is from his stake in Tesla. His most valuable asset is the 42% stake in SpaceX, owner of satellite internet service firm Starlink, which has 7,100 satellites in operation. He also owns a stake worth US$3.3 billion in The Boring Co, a tunnelling firm. In addition, he owns US$2.07 billion worth of stakes in Neuralink Corp, a neurotechnology venture that develops implantable brain-computer interfaces. The fastest-growing firm within his empire is AI firm xAI, which recently merged with X, formerly known as Twitter. That stake is worth US$20.1 billion. xAI is currently trying to raise US$20 billion at a US$120 billion valuation. Musk’s 59% stake in the company would be worth US$70.8 billion if that deal goes through. xAI is now seen as the third biggest AI player behind OpenAI, in which Microsoft has a big stake, and Google’s owner, Alphabet Inc.
Love him or hate him, “Musk’s empire of companies is crucial in the technology race with China,” notes Semafor’s Reed Albergotti. “To win this race, the US must advance its own technology faster, and with leaner companies less reliant on cheap labour and imports. That basically describes Tesla, SpaceX , Neuralink and xAI.” Albergotti argues that America “needs more Elon Musks. To do that, it needs to attract talent from other countries and spend more on free, open scientific research, like the tiny Air Force research grant that led to the creation of the batteries now used in Tesla and BYD cars.”
Ultimate story stock
Tesla has always been “the ultimate story stock”, New York University’s Aswath Damodaran recently argued in a podcast. Ten years ago, Tesla fanboys were not paying for what the company was really worth at the time, but what they thought it could be in its best form a decade or two later. Now, they are looking at what it could be worth in 2040. Their focus is not on the enhanced Model Y. They are tallying up the gains of FSD and Cybercabs and how much of a share the Optimus robots will have of the global humanoid robot market in 2040. Forget the fact that Tesla shares are down 43% from their peak. If you had bought the shares in the second half of 2012, less than 13 years ago, you would have paid a split-adjusted US$1.75 a share for them and would have a 161-fold return. A US$10,000 investment back then would be worth US$1.61 million.
To imagine a successful Tesla without Musk, look no further than Apple. When Jobs passed away in October 2011, Apple’s market capitalisation was about US$330 billion. After 14 years under the helm of his successor, Tim Cook, the iPhone maker is now worth US$3.2 trillion. Tesla fanboys are just fretting over whether their firm can retain its “story stock” status.
Assif Shameen is a technology and business writer based in North America
