NEW YORK, Jan 5 (Reuters Breakingviews) – A Model S is not an iPhone, a fact less obvious back in 2022. Then, electric-vehicle pioneer Tesla (TSLA.O), opens new tab accounted for every dollar of profit generated from battery-powered rides. In that sense, it was similar to Apple, whose trailblazing smartphones became a recurring financial gift. The automaker’s CEO, however, has been steering the $1.4 trillion company into artificial intelligence, self-driving and beyond, fantastical initiatives that look more prescient now.Like Apple, Tesla has lost a crown. The company delivered, opens new tab 1.6 million cars last year, a nearly 10% drop from its 2023 peak. China’s BYD (002594.SZ), opens new tab eclipsed it by selling over 2 million battery-electric vehicles, Reuters reported. When the iPhone maker led by Tim Cook lost market share, however, it stayed immensely profitable. Apple accounts for 43% of worldwide handset revenue, Counterpoint Research reckons, opens new tab, despite slipping to 18% of shipments.
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Tesla is different. Automotive revenue in 2026 is expected to dip 16% below its high, according to estimates gathered by Visible Alpha. The corresponding gross margin sits at half of 2022’s level. As subsidies for battery-powered rides shrink or vanish and EV growth stalls, the company’s operating profitability looks unremarkable next to rivals.
Even a futurist like Musk could not have envisioned all these shifts, especially ones instigated by Donald Trump’s return to the White House. Other things were clearer. Tesla once held manufacturing advantages, like its giant die-casting machines, but they have since spread widely. Proprietary chargers are now accessible to rivals.
The iPhone’s secret sauce is a connection to differentiated services and undergirding other industries. Musk’s noodling over machine-learning and Optimus robots while abandoning efforts at a more reasonably priced vehicle might seem a concession that making cars is just too tough a business. Yet the technological advancements also point to something bigger.
Tesla’s camera-reliant approach to self-driving diverges from competitors and depends on costly AI expertise. If successful, it would change what a car is. Meanwhile, the company’s prodigious battery output powers electric grids. Energy storage is its most profitable business, with proliferating data centers bringing more potential customers.
These are the building blocks of a harder-to-break stronghold. Tesla shares trading at an astronomical 376 times estimated 2025 earnings implies a high degree of confidence in success. Musk has not shown a propensity for carefully polishing products to perfection, a philosophy that may prove too reckless. What could once be construed as the whims of a mad scientist, however, are now shaping up to be a more worthwhile experiment.
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Editing by Jeffrey Goldfarb; Production by Pranav Kiran
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