Tesla just posted its worst profit performance in years, with earnings plunging 46% to $3.8 billion across 2025 as the electric vehicle giant's core car business continues to sputter. The company shipped 1.63 million vehicles globally, marking a second consecutive year of declining sales despite CEO Elon Musk's longstanding promise of 50% annual growth. But investors sent shares higher after-hours Wednesday, betting on Tesla's pivot to what it calls a "physical AI company" - including a surprise $2 billion investment in Musk's AI startup xAI.
Tesla is no longer just an electric vehicle company struggling with falling car sales - it's betting the farm on becoming an AI and robotics powerhouse. The numbers released Wednesday paint a stark picture of an automotive business in decline, even as the company's stock defied gravity on promises of a high-tech future.
The EV maker reported just $3.8 billion in profit for all of 2025, down a staggering 46% from the prior year, according to its shareholder letter. Revenue from car sales fell 11% year-over-year, and the company's 1.63 million vehicle deliveries mark the second consecutive year of sales contraction. It's a brutal reversal for a company whose CEO spent years promising investors average annual growth of 50%.
But Wall Street isn't panicking. Shares climbed in after-hours trading as Tesla beat earnings and revenue estimates, powered by surging growth in everything except its core business. The company's energy storage and solar divisions grew revenue 25% compared to 2024, while its services segment - including Full Self-Driving software subscriptions, insurance, parts, and Supercharging fees - jumped 18%.
The real headline buried in the earnings release: Tesla just invested $2 billion in xAI, Elon Musk's artificial intelligence startup. The investment came as part of xAI's recent Series E funding round, creating yet another layer of financial entanglement between Musk's sprawling business empire and Tesla's shareholder capital.
"2025 marked a critical year for Tesla as we further expanded our mission and continued our transition from a hardware-centric business to a physical AI company," the company wrote in its shareholder letter. It's corporate-speak for a fundamental strategic pivot away from the car business that built the company.
