Is Tesla Stock a Buy Ahead of Its Earnings Report Next Month?

Key Points

• Vehicle deliveries are down year over year, but energy storage remains a bright spot with healthy margins.

• Management continues to pivot the story toward software, autonomy, and energy.

• The stock's valuation already accounts for significant progress toward its ambitious goals for autonomous cars and robotics.

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Tesla (NASDAQ: TSLA) reports results next month, and investors will be watching for evidence that the business is stabilizing after a significant pullback in vehicle sales trends. The electric vehicle (EV) maker sells premium cars, a growing suite of energy-storage products, and paid software for its vehicles, e.g., Tesla's Full Self-Driving (Supervised) software. The mix of hardware and software, combined with ongoing innovation, makes the story unusually dynamic -- and it's why quarterly updates carry extra weight.

Shares have rebounded from their lows this year, making the bull case now depend less on near-term delivery growth and more on whether Tesla can expand margins through software and energy while investing in autonomy and robotics. After all, these are the things that will really move the needle for Tesla over the long haul. So, that is the frame for the upcoming report: Numbers matter, but the destination matters more.

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A rough patch

Financial results at Tesla this year have been disappointing. In its second quarter of 2025, total revenue was $22.5 billion, down 12% year over year. Automotive revenue fell 16% as deliveries slipped and average selling prices declined. Automotive gross margin was 17.2%, down from 18.5% a year ago, with the company citing lower prices and fewer regulatory credits as headwinds. Operating expenses also weighed on results as the company leaned into artificial intelligence (AI) and product road map development spending.

But Tesla's energy generation and storage business were a highlight, with segment gross margin of 30.3% in the quarter and 29.6% for the first half, driven by lower unit costs on Megapack and Powerwall even as average selling prices eased. Deployments totaled 9.6 gigawatt hours (GWh) in Q2, and Tesla says it deployed 20 GWh through the first half of 2025.

Helping the company work through this period of weak demand and high spending is Tesla's strong balance sheet. Through the first half of 2025, net cash from operating activities was $4.7 billion, while cash and cash equivalents stood at $15.6 billion and short-term investments at $21.2 billion as of June 30.

The bigger picture and valuation

Ultimately, though, Tesla stock isn't a story about numbers -- at least not right now. Management has been explicit about where the company is heading: heavier investment in AI, software, autonomous driving, and robotics. Investors will be looking for Tesla to present evidence and arguments that make them believe these aspirations will turn into major business drivers over time.

For now, Tesla's soaring energy business helps ease concerns, as it demonstrates how the company can introduce a new service or business and grow it into something massive. Storage margins in the 30% range are meaningful, and product cadence continues: Tesla introduced new Megapack 3 and Megablock systems in September, underscoring the push to serve utility and data-center demand. At the same time, quarterly energy deployments can be lumpy, so sustained margin quality and backlog detail will be important signals in the next update.

The bull case for Tesla stock, however, can't be entirely dependent on future plans. At roughly $426 per share as of this writing, the market is assigning a premium that assumes continued software monetization and progress on autonomy and robotics today. That premium may be warranted if Tesla shows rising software revenue recognition, firmer automotive margins, and continued energy strength. But if auto pricing pressure persists and software contribution remains modest, today's price could prove unforgiving, especially with shares trading at more than 250 times earnings as of this writing.

For long-term investors weighing a buy before earnings, patience may be the best choice. This doesn't mean the stock is likely to fall after the earnings report. There's no way to know what will happen. There's simply a lot of uncertainty, and the stock's valuation already prices in many of the company's long-term aspirations. More clarity is needed to justify buying the stock at this price.

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Daniel Sparks and/or his clients have positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.