Tesla’s Stock Paradox: Can AI Ambitions Offset Declining Car Sales?

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As Tesla navigates a pivotal week for investors, the market's reaction to its latest quarterly vehicle delivery figures reveals a profound shift in perception. The electric vehicle pioneer confirmed a second consecutive year of declining auto sales, yet the stock's relatively muted response underscores a new reality: Tesla is increasingly valued not as a traditional automaker, but as a high-stakes bet on artificial intelligence.

The company's fourth-quarter 2025 delivery tally came in at 418,227 vehicles, representing a year-over-year decline of approximately 15%. For the full year, Tesla sold about 1.64 million cars, a drop of 8% to 9% compared to its 2024 figures. This performance has officially ceded the title of world's largest EV manufacturer to Chinese rival BYD, which reported sales of 2.26 million pure battery-electric vehicles in 2025.

However, a significant bright spot emerged from Tesla's energy division. The company deployed a record 14.2 gigawatt-hours of energy storage products during the quarter, marking a 29% increase compared to the same period last year. This segment is now growing at a substantially faster pace than the core automotive business and is playing an increasingly important role in supporting the company's overall performance.

Wall Street's Divided Verdict: From Deep Value to AI Speculation

Analyst perspectives on Tesla's trajectory present a stark dichotomy of optimism and skepticism.

The Optimistic View centers on Tesla's potential in artificial intelligence. Wedbush analyst Dan Ives has reaffirmed a $600 price target, contending that the delivery slowdown was already anticipated by the market. He projects that Tesla could reach a $2 trillion market capitalization within twelve months, driven primarily by advancements in autonomous driving and robotics. According to this bullish thesis, 2026 will be the decisive year for Tesla's AI valuation narrative.

The Pessimistic Take focuses squarely on fundamentals. HSBC analyst Michael Tyndall maintains a "Reduce" rating with a $131 price target, which implies a potential decline of nearly 70% from recent levels. Tyndall highlights the growing disconnect between Tesla's valuation—trading at a price-to-earnings ratio exceeding 290—and its contracting core automotive operations. He notes that the company's standard models have failed to compensate for weakened demand following the expiration of key subsidies.

A Middle Ground is staked out by firms like Morningstar, which sees a fair value of around $300 per share. This neutral assessment suggests the stock is moderately overvalued, with its future heavily dependent on whether the planned robotaxi business can generate meaningful revenue starting in 2027 or 2028.

The Broader Landscape: Subsidy Expiration and a Shifting Identity

The sharp 15% quarterly delivery drop has a clear catalyst: the expiration of the $7,500 federal tax credit for electric vehicles in the United States at the end of 2025. This headwind is affecting the entire industry. Rivian, for instance, reported a 31% plunge in its fourth-quarter deliveries to just 9,745 vehicles, indicating that many buyers accelerated their purchases into the third quarter to secure the incentive.

Tesla's market valuation has effectively decoupled from its pure automotive results. Despite falling sales, the company's shares gained over 15% in 2025. Investors are increasingly treating Tesla as a technology conglomerate, betting on its AI computing power, the integration of its Grok AI, and the development of the Optimus humanoid robot. Furthermore, CEO Elon Musk's recent weekend dinner with former President Donald Trump at Mar-a-Lago has fueled speculation about potential regulatory advantages for Tesla's autonomous driving initiatives.

A Technical and Fundamental Inflection Point

From a chart perspective, a critical technical support level sits between $438 and $440 per share. A sustained break below this zone would lend credence to the fundamental critics. If the share price holds above this level, it would suggest the market's "AI premium" remains intact. All eyes are now on the announcement of the earnings call date. That presentation will be a crucial test, revealing whether the record energy business can offset shrinking automotive margins and if the robotaxi vision is a tangible near-term prospect rather than a distant promise.