Tesla is scheduled to report its latest quarterly earnings on Thursday. The company continues to spark heated debate and remains one of the most controversial and closely watched stocks in the market.

Since bottoming in April 2025, Tesla’s share price has been in a strong uptrend, more than doubling before the recent pullback. However, because consumers rushed to bring forward purchases ahead of the expiration of US federal EV tax credits on 30 September, at least 50,000 units of demand were pulled into the third quarter from the fourth. At the same time, increased spending on sales promotions and R&D projects pushed operating expenses up 50% year-on-year to 3.4 billion USD, compressing the operating margin to 5.8%. The company expects capital expenditure in 2026 to jump sharply from around 9 billion USD in 2025, with most of the increase going into AI infrastructure, including the Optimus humanoid robot programme.

Despite the higher spending, Tesla still generated a record 4 billion USD of free cash flow in the third quarter, lifting its cash and investments to more than 41 billion USD. That provides ample financial flexibility to fund its AI ambitions.

Soft delivery volumes are likely to put pressure on revenue and margins in Tesla’s automotive business. However, the company’s energy generation and storage segment is expected to offset part of this drag. Thanks to robust demand for its Megapack and Powerwall products, Tesla’s energy business has been performing well.

Europe is Tesla’s biggest headache. In 2025, Tesla’s sales in Europe fell 27.8% to 235,322 vehicles. Management’s commentary on European demand trends, as well as the impact of Elon Musk’s political activities, will be closely scrutinised.

Energy storage is one of the few clear bright spots. Fourth-quarter deployments hit a new record of 14.2 GWh. For the full year, Tesla deployed 46.7 GWh, up 49% year-on-year, making energy an increasingly important driver of profitability for the company.

Last year, Full Self-Driving (FSD) was launched in Australia and New Zealand, with plans to roll it out in China and Europe, subject to regulatory approval. Musk recently announced that FSD will shift to a subscription model after 14 February. This move aligns with the target in his 1 trillion USD compensation package, which calls for 10 million active FSD subscribers. At present, FSD penetration in the fleet is only about 12%, which means the product has huge potential to grow into a much larger revenue stream in future.

The Optimus humanoid robot has become a critical cornerstone of Tesla’s long-term roadmap. Musk’s compensation package requires the deployment of one million Optimus units, but the mass-production timeline has already been pushed back from early 2026 to the end of 2026.

Market Commentary:

Musk is shifting the company’s strategic focus toward autonomous vehicles and artificial intelligence, seeing them as the key drivers of Tesla’s future growth. However, it will still take several years for these projects to translate into substantial earnings. For now, given Waymo’s lead in the robotaxi space, Tesla still has a long way to go to catch up.