Down 14% This Year, Is Tesla Stock a Buy?

Key Points

• Tesla's vehicle deliveries are falling year over year while margins remain under pressure.

• Management is investing heavily in autonomy, energy, and robotics, but commercialization timelines and profitability are still unproven.

• At a roughly $1.1 trillion market value, the stock already assumes a lot will go right.

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Tesla (NASDAQ: TSLA) shares are down about 14% so far in 2025, despite recent excitement around autonomy and energy storage. The electric-vehicle maker is trying to pivot investors' focus from a tough car cycle to software and services tied to self-driving and a ride-hailing network. But this is a big ask, considering the significant struggles of the company's core business.

The challenge is simple: Vehicle sales are struggling, and profitability is leaning on a lower-margin mix and regulatory credits. Until Tesla proves it can take share again in cars and convert autonomy into material revenue and profit, the stock's rich valuation looks tough to justify.

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Recent results show pressure where it hurts the most

Things have been rough at Tesla lately -- primarily because of its automotive business, which represents the bulk of its sales and profits.

Tesla's second-quarter filing shows total revenue of $22.5 billion, down 12% year over year, with total gross margin at 17.2% versus 18% a year ago. Automotive gross margin fell to 17.2% from 18.5%, with management citing lower average selling prices and fewer regulatory credits as key factors. Energy helped, with that segment's gross margin improving to 30.3% from 24.6%, but it isn't yet big enough to offset the pressure in cars.

The top-line pressure reflects weaker unit trends as demand hasn't reaccelerated yet. In the second quarter, Tesla delivered 384,122 vehicles, down from about 444,000 in the year-ago period.

A compelling roadmap, but execution risk is high

In Tesla's second-quarter earnings call, CEO Elon Musk described the company's path as a "weird transition period," cautioning investors that "we probably could have a few rough quarters." That perspective acknowledges the current fragility even as autonomy remains a long-term opportunity.

Beyond the caution, however, Musk also offered ambition. He expects the Robotaxi service to cover "probably half the population of the U.S. by the end of the year," pending regulatory approvals. That's an impressive goal -- but executing it depends on regulators, safety validation, and technical readiness.

Tesla is running limited pilot rides in Austin with in-vehicle supervisors. Management has discussed broader expansion, but consumer access remains constrained and subject to regulatory approval. That's an important step toward a ride-hailing network, yet regulatory headwinds and technical milestones remain before meaningful, driver-out operations at scale are possible. In short, investors are being asked to underwrite a lot of future execution.

Management is also pushing humanoid robotics and expanding energy storage. The energy business is moving in the right direction, with higher margins and growing deployments, but investors should remember that automotive still drives the financial model today. On robots, comments about factory deployment as early as late 2025 are intriguing; however, volume production, unit economics, and customer adoption are yet to be proven.

Where that leaves the stock

Tesla remains one of the most innovative companies in the world, and its optionality is real. But for shareholders, the near-term math still starts with cars. Deliveries are down year over year, automotive margins are lower than last year, and the autonomy/ride-hailing effort is still in pilot and tightly constrained by regulation. Meanwhile, the stock's market value sits near $1.1 trillion even after a double-digit year-to-date decline to a price that already embeds substantial success in autonomy, energy, or both.

A more attractive setup would include evidence that Tesla is winning back share in vehicles and stabilizing margins, or clear, quantifiable progress toward monetizing autonomy at scale. Those markers might include sustained delivery growth versus both last quarter and last year, automotive gross margin expansion driven by mix and cost, and sharp growth in demand for its vehicles as Tesla demonstrates self-driving capabilities. Until then, the business case is compelling, but the valuation (more than 200 times earnings) already reflects a lot of that promise. For investors who don't own the stock, patience may be the better course; for those who do, the key will be watching deliveries, automotive margins, and concrete autonomy milestones from here.

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Daniel Sparks and/or his clients have positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.