A Little More Bad News for Tesla Investors

Some investors can applaud Tesla (NASDAQ: TSLA) CEO Elon Musk's growing slight-of-hand prowess. While the company has a seemingly ever-growing mountain of problems, challenges, and uncertainty, Musk has cleverly distracted and entertained investors by touting the potential upside of Tesla through artificial intelligence (AI), robotics, and driverless vehicles. Judging by Tesla's still lucrative valuation, many investors are buying in. Before jumping on board, it's important for investors to keep in mind the company's core car-selling business, and recent news isn't so great.

BYD surpasses Tesla

Chinese electric vehicle (EV) juggernaut BYD fairly quickly caught Tesla in global sales, then battled quarterly over sales bragging rights for a while, and now BYD seems to be leaving its rival in the dust.

Image source: Tesla.

BYD sold over 2.2 million full-electric vehicles in 2025, representing a significant 28% surge over the prior year. Meanwhile, going in the opposite direction with sales, Tesla reported 2025 deliveries of 1.6 million vehicles, roughly a 9% decline from the prior year. Those figures account only for full-electric vehicles, though, and when you include plug-in hybrids, BYD sold a whopping 4.5 million vehicles last year, making for a near 50-50 sales split between full-electric and plug-in hybrids.

While critics of Musk and Tesla may be delighted that the EV maker was knocked off its sales pedestal, make no mistake, its competitors understand that several Chinese brands are expanding internationally and will be a force to reckon with. Hefty tariffs on imported vehicles and some automotive parts are making it extremely challenging for Chinese brands to enter the U.S. currently, but that won't protect Western automakers forever.

In fact, BYD's international performance was a bright spot in the sales data. BYD's overseas sales topped 1 million vehicles for the first time, up 150% from the prior year. That news couldn't come at a better time, as Chinese automakers face significant headwinds in their home market, with intense competition and oversupply leading to eroding margins across the industry.

Sleight of hand

Unless you've been dodging Tesla news throughout 2025, you're likely aware that the company faced numerous headwinds, including Musk's political side gig, which rubbed some of Tesla's target audience the wrong way, mounting lawsuits over its Full-Self Driving (FSD) technology, and an aging lineup with sales and profits in decline. In fact, Musk himself warned that the EV juggernaut could have a few rough quarters through the middle of 2026, and so far that has proven accurate.

Despite those numerous headwinds, Tesla's valuation is still sky-high at a price-to-earnings ratio of 314 and a market capitalization of $1.5 trillion. That market capitalization is 11x more than Ford Motor Company ($53 billion market cap) and General Motors ($80 billion market cap) combined.

The driving force behind that premium valuation is simply Tesla's upside potential if it were to develop and expand its business into numerous tech fields. Despite Musk admitting the EV maker was due for a bumpy ride in the near term, investors bought into the sleight of hand that attracted their attention to AI, robotics, battery energy storage, and, of course, driverless vehicles -- the hype pushed the stock to test new highs as the calendar flipped into 2026.

What's an investor to think?

Whether you're a Tesla bull or bear, your attention should be on the company in 2026, as it could be a pivotal year of transition for an EV maker with its core business slowing and question marks hovering over its future.

"We expect an accelerated Robotaxi launch across the U.S., with, importantly, volume production of Cybercabs starting in the April/May time frame. In a nutshell, we believe Tesla is taking major steps in advancing its AI Revolution path with autonomous and robotics front and center heading into 2026 that will be a 'game changer and define Tesla's future,'" Wedbush Securities analyst Dan Ives wrote, according to Investor's Business Daily.

Ultimately, investors buying into Tesla must have real conviction about its ability to execute ambitious plans with AI, robotics, battery storage, and driverless vehicles. There is massive future potential, but don't get too distracted by Musk's sleight of hand. Tesla's core business is slowing, and that might not change in the near term.

Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.