Tesla ( TSLA ) has been in bad shape in China over the past year, as deliveries have softened amid fierce local competition and turnaround incentives. Tesla’s core retail sales in 2025 fell by about 5% compared to 2024, an increase of nearly 9% last year that was briefly covered by growing pressure.
That weakness now looks like a turning point after the latest data showed that Chinese-made deliveries from Tesla’s Shanghai Gigafactory nearly doubled in February, up 91% year-over-year (YOY) to about 58,600 units, including exports. The increase, which helped ease comparisons to an updated Model Y and strong export flows after production stopped a year ago, signals new momentum in the world’s largest electric vehicle (EV) market.
Investors are questioning whether the spike marks a real rebound in demand or a temporary blip. However, final guidance is lacking, and China’s EV market is fiercely competitive.
Tesla is increasingly shifting its long-term strategy beyond EVs toward artificial intelligence (AI), robotics, and autonomous mobility. While its automotive segment still generates most of the company’s revenue, growth is slowing as Tesla prioritizes autonomy, robotics and humanoid robots as the next phase of innovation. New innovations like the Cybercab, Optimus robot, and advanced AI chips suggest that Tesla aims to develop a broader platform of AI-driven technology.
However, this transition brings significant risks. If robotics and autonomous vehicles fail to scale quickly enough, Tesla could face a challenging period between 2026 and 2028 as its traditional auto business slows while new revenue streams remain uncertain.
TSLA stock has been under pressure since late 2025. Shares peaked near $498 in December, now trading around the $400 level in mid-March. This represents a decline of nearly 20% from the recent high. Despite a 2% rebound on March 11, TSLA stock is down 12% year-to-date (YTD). Investors can relate this weakness to macroeconomic disturbances, rising inflation, and rising costs.
Even with the recent pullback, Tesla’s valuation indicates a very expensive stock. For example, the forward price-to-earnings (P/E) ratio is 283 times, significantly higher than the sector average of 15 times, indicating that the shares trade at a premium. Tesla’s premium rating means that heavy future growth is already in the price.
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Tesla is showing some negativity in the fast-growing Chinese EV market, and February sales data clearly showed that. Tesla China delivered 58,600 Model 3/Y vehicles, up 91% from a year ago. Analysts and traders noted that the gain was largely due to a lower comparable basis. In February 2025, Tesla closed the Shanghai plant briefly for the Lunar New Year, making the previous year’s numbers unusually soft. Exports from Shanghai also increased fivefold year-on-year (YOY) to 20,000 units, as European demand remains strong. Still, Tesla’s China sales fell 15% from January, indicating normal seasonal fluctuations.
Competitors like BYD ( BYDDY ) have cut prices and are investing in new models, even as government subsidies ease, and the outlook for China remains grim. In fact, BYD’s Chinese sales fell 65% last month, indicating market turmoil.
However, challenges remain. The global EV competition continues to intensify, and Tesla plans to invest about $20 billion in 2026 for AI, autonomous and robotics development. The company’s long-term strategy relies heavily on expanding beyond vehicles into broader AI-powered technologies.
In late January, Tesla reported its fourth-quarter earnings print, which typically exceeded analyst estimates but saw revenue decline for the first time. Revenues came in at $24.9 billion, down 3% YoY. Each segment contributed equally to the decline, as the automotive business fell 11% to $17.69 billion, even as energy generation and storage revenue rose 25% to $3.84 billion. The quarterly decline was driven by slower deliveries – 418,227 vehicles delivered, down 16% YOY – and a tough pricing environment.
On profitability, Tesla beat expectations for adjusted earnings but saw a steep decline in GAAP profit. The company reported adjusted EPS of $0.50, above Wall Street forecasts of $0.45. Gross margin rose moderately to 20.1%, helped by cost efficiencies, but hurt by higher operating costs. Tesla spent heavily on R&D, and stock-based comp operating expenses climbed 39% YOY.
Free cash flow was low by Tesla standards. The company generated $1.42 billion in free cash in the fourth quarter, down from the $2 billion to $4 billion seen in previous quarters. Still, Tesla ends 2025 with a castle-like balance sheet. Cash, equivalents, and marketable securities were $44.1 billion, up 21% YOY from $36.6 billion. This liquidity helps fund Tesla’s significant capex plans.
Management did not offer official sales guidance, but CEO Elon Musk noted that Tesla will invest heavily in the future. On the earnings call, Musk said the company would “discontinue Model (S and X production)” to make room for robotic factory lines, indicating a shift to new innovations. CFO Vibhu Taneja confirmed that capex will exceed $9 billion spent in 2025, as Tesla builds six new production lines for projects like its Optimus robot and computing AI.
Wall Street is divided over Tesla’s outlook. Morgan Stanley reiterated an “equal weight” rating with a $425 price target. Analyst Adam Jonas argues that the long-term prize is a successful robotics rollout, and sees fully self-driving (FSD) and unsupervised driving as key catalysts for 2027 growth. Jonas predicts mid-single digit delivery growth for 2026, indicating near-term risk.
In contrast, RBC Capital Markets is better. RBC maintained its “Outperform” rating and $500 target. Analyst Tom Narine points to Tesla’s strong balance sheet and $20 billion in capex plans next year as reasons to remain positive, noting that Tesla will use its $44 billion in cash reserves to build six new factories. RBC also believes that the robotics timeline offers a concrete driver for future growth.
Goldman Sachs is more cautious, cutting its Tesla target to $405 while maintaining a “neutral” rating. Analyst Mark Delaney highlights Tesla’s shift towards AI and robotics, and acknowledges the huge push for new capex, but warns that the intensity of competition will keep margins under pressure.
Overall, TSLA stock has a consensus rating of “Hold”. The stock is currently trading near an average price target of $408.32. However, the high street target of $600 set by Wedbush analyst Dan Eavis still implies a potential upside of 50% from here. Ives also believes Tesla’s valuation will reach $3 trillion by the end of 2026 at its peak, driven by optimism about AI, autonomous driving, and robotics.
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As of the date of publication, Nauman Khan had no position (either directly or indirectly) in any of the matters mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
