Tesla's Profit Tanked 61%, Stock Still Climbed. Here's Why

61%. That's how much Tesla's profit dropped. Yet the stock climbed 4% in after-hours trading. This contradiction reveals something crucial about how investors now view the electric vehicle pioneer.

The Numbers Tell a Brutal Story

Tesla's fourth quarter was punishing by any traditional measure. Net income crashed 61% year-over-year, automotive revenue slid 11%, and total deliveries fell by double digits. The company posted its *first-ever annual revenue decline*, marking the end of its high-growth era.

Operating expenses climbed while margins stayed under pressure. The familiar grind of pricing wars, rising costs, and softening demand made selling cars look like exactly what it's become: a tough, competitive business where Tesla no longer enjoys special immunity.

The automotive segment, once the unquestioned centerpiece of the Tesla story, now feels like the part investors skim through. Model 3 and Model Y already make up about 97% of Tesla's roughly 1.64 million deliveries last year, leaving the Model S and X as expensive relics.

What Investors Actually Care About

But Tesla beat consensus expectations on adjusted earnings at $0.50 per share, and more importantly, it kept the market focused on what comes next rather than what just happened.

CEO Elon Musk announced plans to end Model S and Model X production in Q2 2026, freeing up factory space for the Optimus humanoid robot. This transforms the "physical AI" pitch from marketing speak into an actual production schedule.

The energy business continues behaving like a company with momentum. Revenue rose 25% to $3.84 billion, storage deployments hit a record 14.2 gigawatt hours, and the segment posted its fifth straight quarter of record gross profit at $1.1 billion. In a quarter defined by softness elsewhere, energy looked scalable and profitable without heroic assumptions.

The Robotaxi Rally

But energy wasn't why the stock climbed. Autonomy was.

Tesla said it began testing driverless rides in Austin late last year and started removing safety monitors from some customer rides in January on a limited basis. The company published an ambitious map of cities it hopes to serve in 2026.

The details immediately sparked debate about what counts as "unsupervised," how constrained the rollout remains, and how far Tesla still is from a scalable commercial service. That debate didn't slow the rally—it reinforced that Tesla is still being priced on optionality, not confirmation.

The Musk AI Subplot

Then came the predictable Musk twist. Tesla disclosed plans to invest about $2 billion in xAI, Musk's artificial intelligence company, alongside a framework agreement to explore collaboration.

This bundles several unresolved questions into one line item: governance, capital allocation, and how tightly Tesla's fate is now tied to Musk's broader AI ambitions. It also pulls Tesla more firmly into the AI trade, where the market continues to reward generously.

That positioning comes with costs. Tesla's operating expenses climbed sharply, driven partly by expanding AI and research efforts. The company framed higher spending today as a bridge to higher-margin software and fleet revenue tomorrow—a story investors know well and keep choosing to fund.

The Investment Paradox

Tesla can still feed the narrative the market values: autonomy edging closer to operations, energy compounding quietly, and AI positioned as the long-term payoff. The traditional car business? That's become the sideshow.

This creates a fascinating investment paradox. A company losing money on its core business sees its stock rise because investors believe in businesses that don't yet exist at scale. It's venture capital logic applied to a $1 trillion market cap company.

The risk hanging over this entire thesis is timing. How long will investors look past a car business under pressure while waiting for robotaxis and AI to harden into concrete revenue streams?