Tesla, once the undisputed leader in electric vehicles and the darling of Wall Street, is now confronting one of the most challenging periods in its history. CEO Elon Musk, never one to sugarcoat reality, laid out the company’s predicament in stark terms during the latest earnings call, warning investors and fans alike that Tesla is bracing for “a few rough quarters” ahead. The automaker’s core business is faltering, regulatory hurdles loom large, and the much-hyped robotaxi revolution remains more dream than reality.

Sales Slump and Incentive Losses

Tesla’s troubles start with its bread-and-butter: electric vehicle sales. For the first half of 2025, Tesla’s global sales fell 13%—a sharp reversal for a company that has defined the EV boom over the past decade. The reasons are both internal and external. Tesla’s vehicle lineup is aging, with few new models to excite buyers. Meanwhile, the brand has suffered from the political controversies swirling around Musk himself, which some analysts say have alienated would-be customers.

Compounding the problem is the looming expiration of federal tax credits. “We are probably in the transition period where we will lose a lot of incentives in the U.S.,” Musk acknowledged. The $7,500 tax break for EV buyers, which has helped keep Tesla’s vehicles competitive, will soon disappear for many buyers. The company has no new affordable models coming until late in the year, leaving a gap that rivals are eager to fill.

“Tesla cannot afford a misstep with the robotaxi service,” said Shawn Campbell, an adviser at Camelthorn Investments and a Tesla shareholder. “The wheels are coming off its automotive business, with sales declines across almost every market.”

Financial Pressures Mount

The financial picture is growing more complicated. In the second quarter, Tesla’s revenue from selling emissions credits to other automakers dropped to $439 million, less than half the amount from the same period last year. In 2024, these credits brought in $2.8 billion—a critical source of profit as Tesla’s vehicle margins narrow.

Tariff-related costs are also rising. Chief Financial Officer Vaibhav Taneja said Tesla paid $300 million in tariffs in the second quarter alone, and warned that the figure will likely keep climbing through 2025 as global trade tensions persist.

Investors are noticing. Tesla shares dropped 6% in premarket trading Thursday and are down nearly 30% from their December peak. For a company valued at nearly $1 trillion, the pressure to deliver on new growth stories—especially robotaxis and autonomous driving—is intense.

“These numbers kind of speak for themselves,” said Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, and a Tesla investor. “They’re bad for a growth company, which isn’t growing.”

The Robotaxi Gamble

Musk is betting big on what he calls the “robotaxi” future: fleets of fully autonomous Teslas that can ferry passengers without human drivers. On the earnings call, he claimed Tesla is “getting the regulatory permission to launch” robotaxis in states like California, Nevada, Arizona, and Florida. He predicted the service could reach “half the population of the U.S. by the end of the year” and scale up by late 2026.

But so far, reality lags behind rhetoric. Tesla currently operates only a small, non-public robotaxi fleet in Austin, Texas. In California—the top U.S. car market—regulators say Tesla hasn’t even applied for the full suite of permits needed to launch a commercial robotaxi service. The process is arduous, requiring approvals from both the Department of Motor Vehicles and the Public Utilities Commission. Alphabet’s Waymo, for comparison, spent nine years, logged over 13 million test miles, and secured seven different regulatory approvals before it could charge passengers for autonomous rides.

Tesla, by contrast, has reported just 562 autonomous test miles in California since 2016 and hasn’t logged any in the past six years, according to state records. “That caveat is an important one, as regulatory approvals take time,” said Paul Miller, a principal analyst at Forrester. Musk’s ambitious timelines are unlikely to be met without significant progress on the regulatory front.

State-by-State Challenges

Other states may be more receptive, but the road is still long. In Arizona, Tesla recently applied for permits to test and deploy autonomous vehicles, with or without a safety driver. The state’s Department of Transportation expects a decision soon, but Tesla must also submit plans for how police would interact with its driverless cars.

In Nevada, discussions with regulators have begun, but no formal steps have been taken. Florida officials did not respond to requests for comment.

Even in Austin, where Tesla’s robotaxi fleet is based, investors are frustrated by the lack of detail. “It seemed like [Musk] wanted to steer clear of really putting hard estimates out there for how things play out,” said Gene Munster, managing partner at Deepwater Asset Management and a Tesla investor. There’s no clear timeline for when the service will be available to the public or how many vehicles will operate.

Promises vs. Progress

Skepticism is mounting. Musk has been promising fully autonomous Teslas “next year” since 2016. The repeated delays and shifting timelines have led to growing scrutiny from investors and regulators alike. Tesla recently disclosed in a filing that regulators are now asking for more information about its robotaxi plans.

Meanwhile, competitors like Waymo and GM’s Cruise are moving ahead, with established fleets and regulatory frameworks. Tesla’s path is complicated by its decision to skip the incremental steps—such as reporting test miles and collaborating closely with regulators—that other companies have used to build trust and secure approval.

Looking Ahead

Tesla’s future now hinges on its ability to execute on Musk’s robotaxi vision while stabilizing its core EV business. The company must navigate a maze of regulatory hurdles, intensifying competition, and shifting consumer preferences—all while managing the fallout from Musk’s polarizing public persona.

For investors, the next few quarters will be critical. If Tesla can’t reverse its sales slump or deliver on its autonomous driving promises, its sky-high valuation could come under even more pressure.

But if Musk’s bold bets pay off, Tesla could once again redefine the future of transportation. For now, though, the company faces a challenging road ahead—one that will test the limits of its technology, its leadership, and its ability to adapt in a rapidly changing industry.