Tesla (NASDAQ:TSLA) was one of the best performing stocks S&P 500 in 2025. And that tells me a lot about what investors are thinking about the company right now.
The past 12 months have been very challenging for the business. But there have been promising signs and the stock market seems confident – for now.
Car sales
Tesla’s shares are up almost 19% in 2025, but this is not due to higher sales and profits. Net income fell 3% during the first nine months and earnings per share fell 38%.
Another reason for this was the removal of green energy bills which increased the firm’s sales and profits. But the news in this case may not be entirely bad. When it comes to producing electric cars, Tesla’s scale is unmatched. And that gives it a real cost advantage over the likes of Ford again General Motors that’s still perfect.
That means it is in a better position to deal with the elimination of debt used to stimulate producers and consumers. But there are other risks to consider in this. The biggest threat to Tesla in terms of car sales is probably not other US competitors – it’s companies based in China. And those companies are in a position to compete on price.
Long story short, it’s been a tough year for Tesla car sales. But investors are willing – at least for now – to go along with the idea that it’s not really a car company.
Autonomy and robots
The real excitement surrounding Tesla stock in 2025 came from its autonomous vehicle division. The company finally launched its robot network, which now transports real passengers.
Cars currently have a device to monitor the safety of people in the car because this company has not yet reached Level 4 autonomy under local laws. In that sense, it’s behind Waymo.
If Tesla can get there, it will have a significant cost advantage over Waymo because its driverless system is much cheaper to manufacture. And it’s closer now than it was last year.
This is what drives the stock forward. There is a fundamental sense in which a company can go from being behind to being miles ahead almost overnight.
One area where there is less competition to be had is robots. Tesla missed production targets for its Optimus humanoid robot by a long way (about 1,000 vs 5,000). The company has, however, made significant progress with its technology. And that gives investors something else to focus on in 2026.
What will 2026 bring?
Tesla is more successful in 2025 because investors look beyond the current realities of car sales and focus on the potential of automation. And that can be forgiven. I think the stock in 2026 depends entirely on the management’s ability to keep them going. But that may be easier said than done.
Many shareholders say that Tesla is not a car company. But they vote for a CEO with a pay package with a bonus that is triggered by selling a certain number of cars.
The stock could definitely go higher in 2026 and I’m not betting against it. In terms of investment, there is too much optimism reflected in the share price for my liking.
