It's been a challenging year for Tesla (TSLA 5.09%). Its EV sales have declined, as have its profit margins and its share of a market it almost single-handedly established. The company also arguably misstepped by focusing on releasing a higher-priced refreshed model Y when the market appears to be moving toward more budget-friendly options. Still, Tesla remains the best-positioned company in the EV automaker landscape.
Two reasons why Tesla is the pick of the EV sector
There are two key differences between the internal combustion engine (ICE) and EV markets. First, the former is characterized by a relatively low upfront cost/high maintenance and fuel costs, while the EV market is the opposite, with high upfront cost/low maintenance & fuel costs. Therefore, reducing the upfront cost of an EV has a higher impact on its economic value than the same reduction on an ICE vehicle.
NASDAQ: TSLA
Key Data Points
The second is that traditionally, automakers sold cars and struggled to generate significant after-sales revenue. In comparison, recurring revenue is a vital component of Tesla's business strategy.
Tesla can win out
Lowering costs in EV production requires building scale, which in turn lowers the price of vehicles and increases sales volumes. While Tesla's sales have declined this year, it remains the dominant market player, and the introduction of lower-cost models, starting later this year, is likely to boost its sales growth in 2026.
Image source: Getty Images.
As for after-sales revenue, the company has a huge opportunity to generate a recurring stream of income through selling full self-driving (FSD) subscriptions. This is likely to increase markedly if and when Tesla releases unsupervised FSD, not least because it can be used to transform Teslas into robotaxis. On top of that, Tesla's robotaxi concept in general (including dedicated Cybercab vehicles) offers a massive opportunity to generate revenue sharing from robotaxi rides.
