Electric vehicle pioneer Tesla (NASDAQ:TSLA) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 9.2% year on year to $19.34 billion. Its non-GAAP profit of $0.27 per share was 34.9% below analysts’ consensus estimates. The stock traded up 7.7% to $256.54 following the earnings release and call.

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The StockStory Take

Tesla’s first quarter results reflected the impact of a significant global production transition and external pressures. Management attributed the year-on-year sales decline and margin compression primarily to simultaneous Model Y factory upgrades across all major facilities, which temporarily reduced output and vehicle availability. CFO Vaibhav Taneja also referenced negative effects from targeted hostility toward the brand in certain markets, as well as lower regulatory credit revenue. CEO Elon Musk emphasized the completion of this production cutover as a major operational milestone, stating, “We achieved something which has never been undertaken in the automotive industry of updating all our factories for the best-selling car in the world, all at the same time.”

Looking forward, Tesla’s leadership continues to frame autonomy and robotics as the company’s long-term value drivers. Management reiterated their expectation for a mid-2026 financial inflection from large-scale autonomous vehicle deployments and highlighted ongoing investments in AI, new product launches, and supply chain localization. However, both Musk and Taneja acknowledged continued challenges from tariffs, brand perception issues, and affordability concerns. Management described planned launches of lower-priced models and the pilot rollout of robotaxi services as key initiatives to stimulate future demand and profitability.

Key Insights from Management’s Remarks

Tesla’s first quarter reflected operational disruptions and external pressures, with management citing simultaneous Model Y factory upgrades, targeted brand hostility, and tariff-related cost increases as primary headwinds. Despite these near-term challenges, progress in energy storage and autonomous initiatives were emphasized as bright spots.

• Model Y Factory Upgrades: The company performed a global update of its Model Y production lines across all factories within the quarter. Management highlighted this as an industry-first, necessary to improve long-term competitiveness. However, the transition disrupted output and limited new vehicle availability, impacting deliveries and margins.

• Brand Perception and External Hostility: CFO Vaibhav Taneja noted that vandalism and negative sentiment toward the brand affected demand in select markets. Despite these challenges, Tesla reported strong sell-through of legacy Model Y units and record global test drives, suggesting continued underlying consumer interest.

• Tariffs and Supply Chain Localization: Management discussed ongoing efforts to regionalize supply chains to mitigate tariff exposure and logistics risks. While Tesla’s North American vehicle content is over 85% locally sourced, new US tariffs—especially on energy storage products reliant on Chinese batteries—are expected to pressure profitability until local manufacturing scales up.

• Energy Storage Profitability: The energy storage segment achieved record gross profit due to demand for Megapack battery systems, despite a sequential decline in deployments. Management believes this business will become increasingly important as grid stability needs rise with AI and electrification trends.

• Autonomy and Robotics Initiatives: CEO Elon Musk reiterated that autonomous vehicles and humanoid robots remain the company’s primary strategic focus. The pilot launch of fully autonomous robotaxi rides in Austin is targeted for June, with expectations for broader rollout and material financial impact beginning in the second half of next year.

Drivers of Future Performance

Tesla’s management projects that future growth will be driven by advances in autonomy, expansion of energy storage, and increased localization to manage cost and supply risks, while acknowledging continued macroeconomic and industry headwinds.

• Autonomy and Robotaxi Launch: Management identified the June pilot of autonomous ride services in Austin and the anticipated expansion of unsupervised Full Self-Driving (FSD) as critical milestones. These initiatives are expected to scale rapidly if regulatory approvals are secured, potentially shifting the company’s business model by mid-2026.

• Affordable Model Launches: Leadership cited the introduction of lower-priced models, scheduled to begin production in the coming months, as essential to broadening market access and offsetting affordability concerns in a competitive EV landscape.

• Tariffs and Localization Risks: Ongoing and new tariffs, particularly on battery imports and manufacturing equipment, present margin risks. Tesla’s strategy to localize battery and component production is intended to mitigate these pressures, though management cautioned that the transition will take time and may impact near-term capital expenditures.

Top Analyst Questions

• Pierre Ferragu (New Street): Asked why Tesla’s market share in premium vehicles hasn’t grown further given its technology lead. Musk suggested most future vehicle users may opt for autonomous ride services rather than ownership, changing the traditional market structure.

• Emmanuel Rosner (Wolfe): Queried when public FSD software would reach unsupervised capability. Tesla’s engineering team acknowledged ongoing work to reduce rare intervention cases and stated initial launch in Austin will focus on reliability and redundancy before broader deployment.

• Edison Yu (Deutsche Bank): Asked about supply chain implications for scaling Optimus robots and the robotaxi fleet. Musk acknowledged localization is an ongoing process, with further supplier moves to the US anticipated but not yet finalized due to evolving tariffs.

• Colin Langan (Wells Fargo): Questioned the effectiveness of Tesla’s camera-based autonomy in adverse weather and sun glare. Musk explained advances in direct photon-counting camera technology allow Tesla vehicles to maintain visibility in challenging conditions, bypassing traditional image processing limitations.

• Adam Jonas (Morgan Stanley): Inquired about Tesla’s position on tariffs and relative AI leadership between the US and China. Musk advocated for predictable tariffs, voiced concern over US reliance on Chinese drone supply chains, and expressed confidence in Tesla’s global leadership in physical AI and robotics.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be closely monitoring (1) the pace and regulatory progress of Tesla’s robotaxi pilot in Austin and its expansion to additional markets, (2) the ramp-up and consumer response to new, lower-priced vehicle models, and (3) the ability of Tesla’s energy storage business to maintain profitability amid tariff-related cost pressures and ongoing supply chain localization. Execution on these fronts will be key in determining whether Tesla can recover delivery growth and margin expansion as global EV competition intensifies.

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