How the company works
What it sells, how it makes money, and the anatomy of the extremes: what has to break for the result to land far from the forecast, either way. In Tesla's own words, from its annual report for 2025.
Tesla designs, builds and sells electric cars direct to the buyer, builds grid-scale and home batteries, and is spending to turn its cars into a robotaxi fleet and its AI into humanoid robots.
How it makes money
Cars, mostly. Automotive sales were $65.8B of $94.8B of revenue in 2025, sold through Tesla's own website and stores rather than dealers, with no traditional advertising. Regulatory credits sold to other carmakers added $2.0B, down 28% as the One Big Beautiful Bill Act curtailed the programs. Energy generation and storage, the Megapack and Powerwall business, was $12.8B, up 27%, with a gross margin of 29.8% against 17.8% for the cars. Services and other, used cars, Supercharging, insurance and parts, was $12.5B. Net income attributable to common stockholders was $3.8B.
What it sells
| 2025 | Revenue | Change |
|---|---|---|
| Automotive salesModel 3, Model Y, Model S, Model X, Cybertruck, Tesla Semi; FSD (Supervised) and in-app upgrades | $65.8B | −9% |
| Automotive regulatory creditsemissions credits sold to other carmakers | $2.0B | −28% |
| Automotive leasing | $1.7B | −6% |
| Services and otherused vehicles, non-warranty service, paid Supercharging, insurance, parts, merchandise | $12.5B | +19% |
| Energy generation and storageMegapack, Powerwall, Solar Roof and solar panels; 46.7 GWh of storage deployed in 2025 | $12.8B | +27% |
Revenue by line as Tesla reports it; total $94.83B, down $2.86B from the year before. By sales location: United States $47.6B, China $21.0B, other international $26.2B.
Unit economics
A carmaker's margin with a software company's spending. Total gross margin was 18.0%; research was $6.4B, 7% of revenue and up 41%, for AI training compute (Cortex at Gigafactory Texas, Cortex 2 under construction), in-house inference chips and the Bots; capital expenditures were $8.5B. The factories in California, Texas, Nevada, New York, China and Germany are run for "maximum capacity utilization", and in 2026 the company is ramping six new production lines across vehicles, Bots, energy storage and batteries. 134,785 employees. Every car delivered "is designed for autonomy" and takes paid features by over-the-air update, which is the bet: FSD subscriptions and the Robotaxi service, launched in June 2025 in Model Y cars, would move the company "to a service-driven business model based on AI, software and fleet-based profits".
Competitive position
In cars, Tesla says the market "is highly competitive and we expect it will become even more competitive" as established and new makers enter electric vehicles; it competes on performance, styling, safety, its own charging network and software. In autonomy and robotics it competes with AI and ride-hailing companies. In storage it competes on price, energy density and software with established and emerging makers; in solar, with local utilities. Its own answer to the question of advantage: real-world AI, vertical integration, a direct sales and service network, and the data from its fleet.
Biggest cost inputs
Battery cells, electronics and vehicle assemblies from suppliers, some single-sourced; aluminum, steel, lithium, nickel and copper at market prices, with an in-house lithium refinery in Texas running since January 2026; factory depreciation and labor; tariffs, which local factories in China and Germany limit; and AI compute hardware.
Anatomy of a large upside
- Robotaxi and FSD turn the fleet into a service business. If unsupervised driving is approved, every car sold becomes a vehicle for recurring software and ride revenue, with Cybercab, a purpose-built vehicle, behind it; the company's own words call this "fleet-based profits".
- Energy storage keeps compounding. Megapack is sold into AI data center load growth and grid congestion; the line grew 27% to $12.8B at a 29.8% gross margin, and new storage and battery lines ramp in 2026.
- Optimus becomes a product. The same vision AI and in-house chips are applied to a general-purpose humanoid robot; Bot production lines are among the six ramping in 2026, opening a market beyond cars.
Anatomy of a large downside
- Car demand keeps falling and the credits are gone. Automotive sales fell 9% in 2025 on lower deliveries, lower prices and higher incentives, regulatory credits fell 28% under the OBBBA and consumer tax credits for EVs were repealed; cars are still most of revenue.
- Autonomy is not approved, or not Tesla's. Rules for autonomous vehicles and robotaxis are "a regulatory patchwork" in the US and restrict designs in Europe; a competitor's system, or a delay of years, leaves the AI spending without the service revenue it is meant to earn.
- Margins stay thin while the bets are funded. A total gross margin of 18.0% and research growing 41% a year leave net income at $3.8B; tariffs, raw materials and new factory ramps cost before they earn.
Written from Tesla's annual report for 2025, in its words and numbers. The extremes are the long view, what has to break for the result to land far from the forecast; the quarter's own cases, each model's, are on the quarter forecast.