Tesla made smallest annual profit since the pandemic, plans to spend big on robotaxis and robots

NEW YORK (AP) — Tesla’s annual profit plunged to its lowest level since the pandemic five years ago as it lost the title of the world’s biggest electric vehicle maker to a Chinese rival and boycotts hammered sales.

The EV company run by Elon Musk reported Wednesday that net income last year dropped 46% to $3.8 billion. It was the second year in a row of steep declines. The drop came despite the introduction of cheaper models and Musk's promise to remain laser-focused on the company after a foray into U.S politics.

Still, Tesla investors have kept the faith in Musk. The stock is up 9% in the past year.

Musk has been urging investors to focus less on car sales and more on what he considers a bright new artificial intelligence future of robotaxis ferrying millions in cars without drivers, or even steering wheels, and robots watering plants and taking care of elderly parents.

On a conference call, Musk underlined that shift by announcing Tesla had decided to close down production of two older car models, S and X, in the second quarter and convert a Fremont, California, factory to produce its Optimus robots instead.

Making those future ambitions a reality will take money. Officials said Tesla would spend big on AI and others new projects this year, more than doubling capital expenditures to $20 billion. And the company revealed it had recently invested $2 billion in the artificial intelligence company xAI, raising potential conflicts of interest issues as Musk holds big stakes in both companies.

That AI business, known for its Grok AI assistant, has courted controversy for echoing Musk’s views on race, gender, and politics and, recently, producing nonconsensual sexualized deepfake images.

Tesla's fourth quarter profit also fell sharply, dropping 61% to $840 million, or 24 cents. But excluding one-time charges, net income totaled 50 cents per share, compared to analysts' forecasts of 45 cents.

“They’ve got aging product that is less and less competitive as other manufacturers come out with new models, then there is the general brand destruction," said Telemetry analyst Sam Abuelsamid. "Musk‘s involvement in politics has turned off customers.”

There were hopeful signs in the report, too. Tesla's energy storage business, though small compared to the car sales, posted strong numbers last quarter with revenues surging 25% to $3.8 billion reflecting demand from new datacenters sucking up energy around the U.S.

Tesla's gross profit margins were another bright spot, leaping to 20% last quarter from 16% a year ago.

“Tesla’s ability to show improving profitably was a surprise,” said Morningstar analyst Seth Goldstein.

Goldstein said he was also encouraged by plans outlined in Tesla’s earnings report to roll out robotaxi service in Houston, Miami and five other cities in the first half of this year. In the conference call, the company also said that it would begin producing its two-seated Cybercab with no wheels or pedals in the same time frame.

But Musk is well know for making promises with deadlines he never meets.

Musk said that European regulators would approve its partial self-driving software in the first three months last year, a potential big boost to Tesla sales there. But that hasn't happen yet. And a strong revival in sales Musk heralded midway through the year also failed to materialize.

The robotaxi program has progressed slowly, which Musk told investors is due to Tesla being extremely cautious to avoid mishaps. Tesla promised robotaxi rides without anyone driving the car, but until recently the cars had supervisors inside to grab the controls in case something went wrong. Tesla has now removed the safety drivers in Austin where it launched the service in June.

For some on Wall Street that is enough to keep pushing the stock up.

One of Wall Street’s most bullish analysts, Dan Ives of Wedbush Securities, expects robotaxis will be in more than 30 cities by the end of this year, and that Tesla will capture 70% of the global market for self-driving cars in a decade.

Ives and others are also encouraged that Musk has shifted his focus back to the company after spending months as head of a government cost-cutting team in Washington.

But it’s not clear his attention will remain as undivided in the new year. He has plans to take his rocket company SpaceX public, possibly in June, in what many expect to be a blockbuster IPO that make him the world’s first trillionaire — but also possibly distract him.

FILE - A Tesla Model S is pictured at the Paris Auto Show, in Paris, Oct. 14, 2024. (AP Photo/Michel Euler, File)

Elon Musk attends the Annual Meeting of the World Economic Forum in Davos, Switzerland, Thursday, Jan. 22, 2026. (AP Photo/Markus Schreiber)

The average long-term U.S. mortgage rate climbed this week to its highest level in nearly a year, driving up borrowing costs for prospective homebuyers.

The benchmark 30-year fixed rate mortgage rate rose to 6.55% from 6.49% last week, mortgage buyer Freddie Mac said Thursday. One year ago, the average rate was 6.75%.

Higher mortgage rates can add hundreds of dollars a month in costs for borrowers, limiting homebuyers’ purchasing power at a time when affordability challenges continue to sideline many aspiring homeowners.

Mortgage rates are influenced by several factors, from the Federal Reserve’s interest rate policy decisions to bond market investors’ expectations for the economy and inflation. They generally follow the trajectory of the 10-year Treasury yield, which lenders use as a guide to pricing home loans.

Rates have been mostly rising this year as the war with Iran has driven crude oil prices sharply higher, stoking expectations of hotter inflation. That's pushed up long-term bond yields relative to where they were before the conflict began in late February, causing mortgage rates to trend higher.

The 10-year Treasury yield was 4.57% at midday Thursday on the bond market, up from 4.54% a week ago. It was just 3.97% in late February, before the war broke out.

The average rate on a 30-year mortgage is now the highest it's been since Aug. 28, when it was at 6.56%. As recently as late February, the average rate dropped slightly below 6% for the first time since late 2022.

Borrowing costs on 15-year fixed-rate mortgages, often sought by borrowers refinancing a home loan, also rose this week. That average rate increased to 5.93% from 5.82% last week. A year ago, it was at 5.92%, Freddie Mac said.

A report this week showing prices paid by consumers for gas, clothes and other goods cooled last month could help take pressure off the Federal Reserve, which is considering raising interest rates.

The central bank doesn’t set mortgage rates, but its decisions to raise or lower its short-term rate are watched closely by bond investors and can ultimately affect the yield on 10-year Treasurys.

That cooler inflation reading “is a step in the right direction, but until mortgage rates actually follow suit, buyers will keep feeling the pinch of stubbornly high borrowing costs even as other conditions improve,” said Hannah Jones, senior economist at Realtor.com.

While average long-term mortgage rates remain lower than they were at this time last year, their upward trajectory has weighed on home sales this year.

And the latest monthly tally of home purchase transactions that have yet to be finalized points to potentially more sluggish home sales this summer.

Pending U.S. home sales fell 5.4% in June from the previous months and were down 0.3% from June last year, the National Association of Realtors said Thursday. There’s usually a month or two lag between a contract signing and when the sale is finalized, which makes pending home sales a near-term bellwether for the housing market.

Data on mortgage applications also signal that the upward trend in mortgage rates has given some would-be homebuyers reason to pause.

Mortgage applications, which include loans to buy a home or refinance an existing mortgage, fell 2.7% last week from the previous week, according to the Mortgage Bankers Association. The pullback was driven mainly by a 7% drop in applications to buy a home.

FILE - A sign is posted for a new home for sale in Ambler, Pa., Oct. 16, 2025. (AP Photo/Matt Rourke, File)