The shine has come off Tesla (TSLA +1.87%) in the last few years. At one point, it was considered the definitive growth stock for investors to own, with shareholders betting that founder Elon Musk would take the lead in the emerging electric vehicle (EV) industry, along with other promises in areas like energy storage and self-driving technology.
There was no price too high to pay for owning Tesla. Now, investors have begun to sour on the EV maker, in favor of other artificial intelligence (AI) stocks, including the other Musk-led business, Space Exploration Technologies (SpaceX).
In 2026, Tesla shares are down 26% year to date. Here's what the business needs to do to get the share price moving in the right direction.
NASDAQ: TSLA
Key Data Points
Upcoming AI products
Originally, Tesla was a bet on the growth of electric vehicle sales. It showed tremendous growth in scaling up production of its Model 3 and Model Y, increasing from 100,000 total deliveries in 2017 to 1.8 million in 2023. However, since 2023, total vehicle deliveries have stalled, leading to a similar stagnation in the share price.
Musk has pivoted Tesla's business toward new AI products, while keeping his chatbot and cloud computing ambitions within the xAI/SpaceX corporation. These Tesla AI products include the Cybercab, a two-seat vehicle that will be the flagship of the company's self-driving taxi network, similar to how Waymo operates today. It also has its standard full self-driving (FSD) software, which is sold on top of vehicles. It is a bit confusing because this is not necessarily fully autonomous software right now, but it has 1.48 million active subscriptions, growing 56% year over year.
Lastly, Tesla is working extensively to embed AI in robotics with its humanoid robot, Optimus. This is in even earlier days than the Cybercab, but the company is working to scale up a factory in California for humanoid robot production as we speak.
Image source: Getty Images.
Margin recovery
Besides revenue stagnation, a major deterioration in profit margins is a key reason why Tesla's stock price has struggled recently. It had an operating margin of 4.6% over the last 12 months, which is much lower than its historical peak of over 15% and has only declined in the last few years.
Margin recovery will be key to Tesla's share price recovering. An even higher hurdle for said margin recovery is being erected by guidance for a record $25 billion in capital expenditures this year, roughly double what the business spent in the last 12 months. Capital expenditures will flow through the income statement as depreciation in the future, which will be a headwind to profit margins.
This means that, to improve its profit margin, Tesla will need to grow its revenue significantly to get a return on all this capital spending. It won't be easy, but Musk has pulled plenty of miracles out of his hat before.
A merger miracle in waiting?
With Tesla's market cap at $1 trillion, the company will need to show strong growth in its AI-related hardware products for the stock price to start rising again. It can sell more vehicles, but Tesla is already valued at a higher market cap than even the world's largest automakers. Shareholders are focused on FSD and Optimus, and will be disappointed if these products don't deliver on the gains Musk promised, despite vehicle deliveries returning to growth last quarter.
Where a miracle may arrive is in a potential merger with SpaceX. During Tesla's most recent earnings call, a Wells Fargo analyst asked Musk about speculation swirling around the prospective deal. Musk said he couldn't speculate about mergers, but mentioned the growing overlap between the two businesses.
A merger could be a life vest for Tesla at a time when the stock is struggling to meet high expectations, and it seems to have a decent chance of happening over the next few years. I wouldn't buy the stock solely because of a potential merger with SpaceX, but it does add a nice potential catalyst for anyone holding shares today.
