By addressing precursor prevalence and energetics using the DFT-based synthetic growth concept (SGC), the formation mechanism of self-induced InAlN core–shell nanorods (NRs) synthesized by reactive magnetron sputter epitaxy (MSE) is explored. The characteristics of In- and Al-containing precursor species are evaluated considering the thermal conditions at a typical NR growth temperature of around 700 °C. The cohesive and dissociation energies of In-containing precursors are consistently lower than those of their Al-containing counterparts, indicating that In-containing precursors are more weakly bonded and more prone to dissociation. Therefore, In-containing species are expected to exhibit lower abundance in the NR growth environment. At increased growth temperatures, the depletion of In-based precursors is even more pronounced. A distinctive imbalance in the incorporation of Al- and In-containing precursor species (namely, AlN/AlN+, AlN2/AlN2+, Al2N2/Al2N2+, and Al2/Al2+ vs InN/InN+, InN2/InN2+, In2N2/In2N2+, and In2/In2+) is found at the growing edge of the NR side surfaces, which correlates well with the experimentally obtained core–shell structure as well as with the distinctive In-rich core and vice versa for the Al-rich shell. The performed modeling indicates that the formation of the core–shell structure is substantially driven by the precursors’ abundance and their preferential bonding onto the growing edge of the nanoclusters/islands initiated by phase separation from the beginning of the NR growth. The cohesive energies and the band gaps of the NRs show decreasing trends with an increment in the In concentration of the NRs’ core and with an increment in the overall thickness (diameter) of the NRs. These results reveal the energy and electronic reasons behind the limited growth (up to ∼25% of In atoms of all metal atoms, i.e., InxAl1–xN, x ∼ 0.25) in the NR core and may be qualitatively perceived as a limiting factor for the thickness of the grown NRs (typically <50 nm).