Additional Coverage:
- Tesla reveals $2 billion investment in Elon Musk’s xAI and officially kills the Model S and Model X (fortune.com)
Tesla Shifts Gears: Ditching Model S & X for Robots and AI
Tesla CEO Elon Musk has kicked off the new year with a series of bold announcements that signal a significant pivot for the electric vehicle giant. Among the most striking revelations are a substantial $2 billion investment in his artificial intelligence firm, xAI, and the immediate discontinuation of two of Tesla’s long-standing car models: the Model S and Model X.
These moves, even by Musk’s unconventional management standards, highlight a profound transformation within the company as it faces increasing competition in the EV market, particularly from Chinese manufacturers. In a surprising turn, Musk announced that the factory space previously dedicated to the Model S and X will now be repurposed for the production of Optimus robots. These humanoid robots, currently in their experimental phase, are envisioned by Musk to eventually handle a wide range of tasks, from household chores to complex surgical procedures.
Tesla executives emphasized that the investment in xAI is designed to create efficiencies for Tesla, eliminating the need for the carmaker to allocate similar resources to AI development. Musk further elaborated that this collaboration will ultimately aid Tesla in managing its growing fleets of autonomous vehicles and Optimus robots.
“We’re just doing what shareholders asked us to do, pretty much,” Musk stated during a Wednesday evening call, noting that a significant number of investors had expressed interest in the xAI investment. Following these announcements, Tesla shares saw a modest increase of approximately 1.8% in after-hours trading on Wednesday.
Despite a 3% year-over-year dip in fourth-quarter revenue, which some analysts attribute to a slowdown in EV sales following the expiration of federal tax credits, Tesla still managed to surpass Wall Street expectations, reporting $24.9 billion in revenue against estimates of $24.8 billion.
Musk also highlighted a shift in Tesla’s core mission, moving from “to accelerate the world’s transition to sustainable energy” to “build a world of amazing abundance.” He spoke about AI’s potential to facilitate “universal high income” and improved medical care for all humans. The language used during the call, including a reference to a much-needed rare earth refinery in America, hinted at his recent interactions with former President Trump.
Tesla has been increasingly distancing itself from its origins as a car manufacturer, focusing more on autonomous software and robotics. “It’s time to basically bring the Model S and X programs to an end with an honorable discharge, because we’re really moving into a future that is based on autonomy,” Musk explained.
Musk revealed that Tesla is currently operating 500 robotaxis across Austin and San Francisco, and is conducting “randomly selected paid rides” in Austin without a safety driver. The exact number of unsupervised rides remains unclear. For the first time, Tesla disclosed its Full Self-Driving (FSD) software subscription numbers, reporting 1.1 million subscriptions in 2025, a notable increase from 800,000 in 2024.
While Musk has been making promises regarding autonomy for over a decade, the company has yet to deliver substantial profits from this sector. During Wednesday’s earnings call, CFO Vaibhav Taneja noted that due to the “early phase” of robotaxi fleet deployment and ongoing validation and testing, “revenue and cost per mile metrics are not meaningful to discuss at the moment.”
Taneja also championed the xAI investment, confirming that Grok, xAI’s chatbot, is already integrated into Tesla’s vehicle fleet. “Today, if you look at Tesla vehicles, we are using Grok in there,” he stated.
Earlier this month at the World Economic Forum in Davos, Musk announced Tesla’s plans to begin selling Optimus robots by the end of next year. By reconfiguring its Fremont factory, Tesla projects it will be able to produce 1 million Optimus robots annually.