This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Tesla could still have significant long-term growth opportunities in AI and energy storage, along with its flagship electric vehicle business.
- Competition in the EV space, declining profits, and a high stock valuation have posed challenges for investors of late.
- Tesla's large cash balance can help it continue to fund ambitious growth endeavors.
Tesla (NASDAQ: TSLA) pioneered long-range electric vehicles (EVs) and for many years benefited from rising demand for its high-end, desirable products. Tesla's initial strategy focused on a top-down approach, where it developed high-performance, long-range luxury EVs to build the brand's image and generate capital for the development of more affordable mass-market models. This strategy was very successful and created a strong halo effect around the brand.
Tesla effectively dominated the U.S. luxury EV market for years, and at one point was even outselling traditional luxury brands like BMW and Mercedes-Benz. If you want to learn more about how Tesla makes money, its financials, and key recent developments with the business, keep reading.
What does Tesla do?
Tesla designs, manufactures, and sells EVs, along with energy generation and storage systems. It produces a range of electric cars, including the Model S, Model 3, Model X, Model Y, and Cybertruck. It also manufactures the Tesla Semi commercial truck. The company makes clean energy products such as solar panels and solar roof tiles for homes and businesses.
It sells and installs battery energy-storage systems, from home-based units to grid-scale storage systems. Tesla builds and maintains a global network of Superchargers for its electric vehicles and offers home-charging products as well. The company also develops and sells its supervised Full Self-Driving (FSD) technology, an advanced driver-assistance system that still requires active driver readiness.
More recently, management has dealt with a range of challenges, including heightened competition, production shipping delays, declining sales in certain markets, and a drop in profits despite record vehicle deliveries. Tesla is also facing multiple recalls and investigations.
And some investors remain unhappy with the fact that CEO Elon Musk has shifted some of the company's focus and capital toward artificial intelligence and robotics projects, and recent controversies surrounding Musk's public comments and political activities have led to protests and calls for Tesla boycotts. Still, its brand recognition and charging infrastructure remain key assets.
How does Tesla make money?
Tesla makes money through the sale of its electric vehicles, which remain its largest revenue source. The company also generates revenue from leasing its vehicles and from servicing and repairing them. Its energy and storage segment develops, manufactures, and sells clean energy products for residential, commercial, and utility-scale use. The segment's products include the residential Powerwall and large-scale Megapack battery systems.
Tesla has historically earned significant revenue from selling regulatory credits, but as more major automakers develop and sell their own EVs, they may become less reliant on buying credits from Tesla. Changes in government policies could also significantly impact Tesla's credit revenue in the near future.
The sale of FSD software upgrades for its self-driving technology is a growing source of revenue. In the past, management has also profited from selling Bitcoin, though this is not a consistent revenue stream. While not yet a major revenue source, the company is positioning itself for earnings from a future robotaxi network and other AI-related opportunities it hopes to leverage.
Tesla's financials
In the third quarter of 2025, the company reported revenue of $28.1 billion, up about 12% year over year. Total automotive revenue rose 6% from one year ago, while energy generation and storage sales skyrocketed by 44%. Free cash flow reached a record high of nearly $4 billion, and the company had nearly $42 billion in cash and investments on its balance sheet, which far exceeded its total debt of about $7.5 billion.
It delivered 497,000 vehicles in the three-month period, which surpassed its own forecasts and analyst estimates and was up 7% from one year ago. Tesla reported particularly strong growth in European deliveries (up 25% year over year) and record deliveries in South Korea, Taiwan, Japan, and Singapore.
However, net income came in at $1.4 billion, a sharp decline of 37% from the previous year and the fourth consecutive quarter of a profit drop. Margins have been squeezed as Tesla has lowered prices to stimulate demand and compete with lower-cost EV makers, while it's also incurring higher operating expenses for AI and robotics projects. The expiration of the U.S. federal EV tax credit in September is expected to weigh on near-term deliveries and sales in the fourth quarter of 2025 and into 2026.
Recent developments
Tesla is heavily investing in the development of robotaxis and humanoid robots. Its long-term financial success could significantly hinge on the adoption of these technologies, which are still in early stages of development and not yet contributing significant revenue. The company plans to unveil a new version of its general-purpose AI-driven Optimus robot in the first quarter of 2026, with an ambitious goal of building a production line by the end of 2026 capable of producing up to a million units annually.
The robotaxi service, which uses a fleet of FSD-enabled Model 3s and Model Ys (some with a human safety monitor, some without), was launched in Austin, Texas, in June 2025. Musk plans a significant expansion of this fleet by the end of 2025, and is aiming for over 1,500 robotaxis in cities including Austin and the San Francisco Bay Area, with potential launches in Arizona, Nevada, and Florida pending regulatory approval.
The two-seater Cybercab, a vehicle specifically designed for autonomy without a steering wheel or pedals, was unveiled in October 2024 and its mass production is a key part of management's long-term strategy. It plans to start production of the Cybercab in the second quarter of 2026, but the vehicle's ultimate release timeline may be affected by factors like self-driving software and regulatory approval.
Tesla has introduced the six-seat Model Y L in China. It features a 2-2-2 seating configuration with second-row captain's chairs and an overall length and wheelbase longer than the standard Model Y. Deliveries in China began in September 2025, and the variant has been met with strong demand. Production for a U.S. version might start in late 2026, but this has not been confirmed, and the model might never come to North America.
Tesla is also reportedly ramping up work on the second-generation Roadster. Production is still several years away, but the vehicle's development is progressing, including work on advanced features like the proposed SpaceX package with cold-gas thrusters. The design has been a subject of frequent delays since its initial 2017 unveiling. The most recent estimated time frame for production is around 2027 or later.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
