Tesla Stock (TSLA) Faces EV Headwinds as Software Bets Rise

Tesla TSLA +2.15% ▲ stock faces growing headwinds in its electric vehicle (EV) business even as the company ramps up its bets on software, artificial intelligence (AI), and energy platforms. Interestingly, the rationale is not tied to whether EV demand can accelerate. Instead, the debate centers on whether Wall Street views Tesla as merely a high-cost automaker, despite how its long-term trajectory angles toward software, AI, and energy infrastructure.

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So far in 2026, Tesla has been struggling to find momentum. The stock has traded under pressure, with its share price down about 9.3% year-to-date. Investors have been focused on lower EV demand, price cuts, and intensifying competition even as Tesla continues to push ahead with its AI and energy ambitions.

In light of that, I see a company whose golden goose is being challenged, but whose profit mix is quietly tilting toward higher-margin, more long-lasting avenues that the market may be undervaluing. I have a neutral stance on TSLA in the near term.

Tesla Is Still an Auto Company

For now, Tesla remains heavily dependent on its automotive business. Automotive sales are still the largest revenue contributor, and slowing volume growth alongside brutal price cuts have affected margins, leading to Tesla’s first annual revenue drop in 2025. That headline has sparked arguments that TSLA’s premium valuation is no longer justified.

It’s easy to see why Wall Street may be conflicted about Tesla’s future fortunes. Some analysts view it as a car company facing shrinking margins, pricing pressure, and intensifying competition in the EV market. The auto segment is highly capital-intensive and cyclical. There is no assurance that Tesla can sustain its historical levels of pricing power as competitors push ahead.

However, this view can overlook that Tesla is transitioning to a high-quality platform, with autonomy, software, and grid‑scale energy storage as the major profit drivers.

Energy Storage Is Becoming Profitable

Tesla’s energy generation and storage business has grown into a major growth driver. The earnings power of the energy segment now rivals the core business. The business, led by large stationary batteries such as Megapack and Powerwall, and solar panels, delivered revenues of $12.8 billion in 2025, up by more than 25%.

In Q4, out of the $3.8 billion in gross profit of the storage business for the entire year, Megapack contributed $1.1 billion. The gross margin in Q4 was 29.8%, nearly double Tesla’s margin on cars and trucks, underscoring that batteries and solar panels are highly profitable.

Tesla deployed a record 46.7 gigawatt-hours of storage in 2025, a 48% increase from last year. Also, it anticipates nearly $5 billion in deferred storage revenue to be realized in 2026 from ongoing storage projects. Again, that is more than double the company’s deferred revenue from storage projects in 2025.

FSD and Software Are Bringing Recurring Revenue

Tesla is working to turn Full Self-Driving (FSD) and its software stack into recurring revenue as opposed to one-off sales. The company is pivoting from up-front FSD purchases to a subscription model. If adoption scales, this could lead to a more predictable stream tied to the already-established base, rather than to new-car sales alone. Also, if Tesla can prove the safety and scalability of its autonomy stack, there could be a possible licensing of FSD to third-party automakers.

Tesla and its most reassuring supporters envision a future robotaxi network in which the company monetizes autonomy at the network level rather than per vehicle. Concurrently, Tesla is planning capital expenditure of over $20 billion in 2026, with a strong inclination toward AI training infrastructure, robotics, and energy investments, rather than just new vehicle plants.

Furthermore, there are other services and elements of its software that Tesla can layer on top of the aforementioned. Services such as connectivity packages, in-car apps, and insurance offerings generate high margins and provide another revenue stream.

What Is the Market View?

The market seems interested but hasn’t been fully convinced. There are still some risks to consider in all of these, including regulatory approvals, safety hurdles, competition, capital intensity, and macro and demand risks. These factors are clear reasons why many analysts are cautious in their forecasts.

On TipRanks, TSLA shows a Hold consensus rating, with 13 Buy, 11 Hold, and seven Sell calls, based on 31 analyst opinions over the past three months. The average 12‑month price target sits above $399, signifying modest downside from current levels, while the highest price target reaches $600, and the low end drops to $25.

Final Thoughts

Tesla’s shift from a pure EV manufacturer to a software and energy-driven platform is already visible in the numbers, even though the automotive business still accounts for the bulk of the revenue. Energy storage is growing rapidly, while FSD, subscriptions, and possible licensing offer high-margin opportunities that classic auto models were unable to. A spending model focused on AI infrastructure and energy investment speaks volumes about a company aiming to grow its business toward software, data, and grid-scale infrastructure.

For investors who believe Tesla can scale its energy business, an opportunity lies between today’s uncertainty and its future profits. However, it comes with substantial regulatory, economic, and execution risk.

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