Tesla’s (TSLA) first quarter of 2025 reflected a turbulent start to the year, with steep year-over-year declines in its core automotive business offset in part by strong momentum in Energy and Services. Total revenue fell to $19.3 billion, a 9% decrease compared to Q1 2024, with GAAP net income sliding 71% to $0.4 billion and operating income dropping 66% to the same figure. Profitability metrics were notably pressured, as operating margin narrowed to 2.1% and gross margin slipped to 16.3%, both down significantly from a year ago.

The downturn was driven primarily by a 20% year-over-year drop in automotive revenue to $14.0 billion, as vehicle deliveries declined 13% to 336,681 units, amid ongoing production line upgrades and pricing pressures. Tesla cited lower average selling prices, foreign exchange headwinds, and a challenging macroeconomic backdrop as contributing factors. Deliveries of the Model 3/Y, the company’s volume drivers, were down 12%, while “other models” saw a 24% decline.

In contrast, the Energy Generation and Storage segment surged 67% to $2.7 billion in revenue, driven by a record 10.4 GWh of storage deployed—a 154% increase from the prior year. The company also recorded its first-ever 1 GWh+ quarter for Powerwall deployments, highlighting sustained demand despite supply constraints. Tesla’s Megafactory in Shanghai contributed with more than 100 Megapacks produced and plans to double its 20 GWh annual capacity.

Tesla’s Services and Other business grew 15% to $2.6 billion, buoyed by a 25% increase in gross profit thanks to gains in non-warranty repairs and the expanding Supercharger network. The company now operates 7,131 stations and over 67,000 connectors, supporting 42 million charging sessions during the quarter.

Despite the drop in earnings, cash generation was a bright spot. Tesla reported free cash flow of $0.7 billion, a sharp turnaround from negative $2.5 billion a year ago. Cash and investments rose to $37.0 billion, providing the company with ample liquidity to pursue its roadmap, including the launch of more affordable vehicles in the first half of 2025 and the Cybercab robotaxi, slated for volume production in 2026.

Looking ahead, management acknowledged the difficulty in issuing precise volume guidance amid evolving trade dynamics and macroeconomic uncertainty. However, they emphasized continued focus on margin expansion through AI, software, and fleet services, alongside capex-efficient vehicle production strategies. The next-generation vehicle platform, while offering less cost reduction than previously anticipated, is expected to enable scalable growth with lower upfront investment.

While the quarter underscored headwinds in Tesla’s traditional automotive operations, growth in energy and services, improving cash flows, and a well-capitalized balance sheet reflect the company’s broader strategic pivot toward software, AI, and infrastructure-driven profitability. Updated guidance is expected in Q2.