Although Elon Musk is staking Tesla’s (TSLA) future on artificial intelligence, for now, the funding supporting this grand vision still comes primarily from car sales. However, its core automotive business is facing increasingly severe challenges. Analyst surveys show that Tesla is expected to deliver approximately 372,000 vehicles over the past three months. While this represents an 11% increase year-over-year, it remains at the lower end of recent quarterly totals. Last year, sales were impacted by a boycott triggered by Musk’s role in the Trump administration, as well as production disruptions caused by the update to the popular Model Y. Currently, with the global slowdown in electric vehicle demand and the absence of federal tax incentives, Tesla’s sales growth may enter a “new normal,” falling far short of its quarterly peak of nearly 500,000 vehicles. Meanwhile, as the low-volume Model S and Model X are gradually phased out, its somewhat aging product line is further contracting, while global competitors continue to multiply.
Market focus on Tesla is shifting. Gene Munster, managing partner at Deepwater Asset Management, believes that proving stable deliveries without tax credits would be a victory for Tesla. Although Tesla’s sales in Europe stabilized early this year, the Chinese market had a strong start, with exports from its Shanghai factory surging 91% in February.
However, what truly drives investor sentiment is no longer just vehicle sales figures. Enthusiasm for Musk’s future business blueprint propelled Tesla’s stock to an all-time high last December. Now, the market is more inclined to focus on tangible progress in its robotaxi, Cybercab, and Optimus robotics projects. As long as the electric vehicle business maintains stable or modest growth, supporting Musk’s AI ambitions, it is considered beneficial. Garrett Nelson, senior vice president of equity research at CFRA, points out that the market is closely watching whether Tesla can deliver on its ambitious product timeline and its soaring capital expenditure plans. These macro-level developments are profoundly influencing market sentiment.
Tesla’s valuation far exceeds that of a traditional automotive business, with a price-to-earnings ratio of 161 times 2026 earnings estimates. Investors’ high expectations are built on the future recurring revenue potential from its autonomous taxi business, including mileage commissions, software subscriptions, and charging services. Wall Street analysts predict significant profit growth for Tesla as a result, but the wide disparities among different forecasts also reflect the uncertainty.
The crux of the issue is that the expansion of Tesla’s autonomous taxi business is far from meeting expectations. Although the company is investing billions of dollars to advance this, including mass production of the Cybercab and construction of battery factories, it remains unknown whether regulatory approval progress will align with production speed. As Tesla seeks to expand its robotaxi network beyond a limited area in Austin, it faces the risk of capital being tied up, and its first-mover advantage is being challenged. According to plan, the business is expected to expand to seven U.S. cities in the first half of 2026, but it has yet to officially launch as of now. Further delays in this rollout would directly undermine the feasibility of profit forecasts. Until Tesla demonstrates its medium-term prospects to the market, investors are awaiting more substantial positive news.
