Tesla Drops Car Models to Go All-In on Robots and AI
Tesla reports a 3% revenue decline as it exits Model S & X to focus on AI, robotics, and Optimus humanoid robots amid rising EV competition.
Tesla says its focus on artificial intelligence (AI) and robotics has contributed to the electric vehicle (EV) maker's first-ever annual revenue decline.
The company, run by billionaire Elon Musk, reported a 3% drop in total revenue for 2025, while profits fell by 61% in the final three months of the year.
Tesla also announced it would cease production of its Model S and Model X vehicles. It will now use the manufacturing plant in California to build its humanoid robots, known as Optimus.
In January, China's BYD overtook Tesla to become the world's largest EV manufacturer, while Musk's involvement in politics has been controversial both in the US and abroad.
Tesla also disclosed a $2 billion (£1.45 billion) investment in Musk's artificial intelligence venture, xAI.
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Regarding Tesla's participation in xAI's latest funding round, Musk said, "Many investors asked us to do this. They said we should invest in xAI, so we're doing what the shareholders asked us to do."
This move comes after Tesla shareholders recently voted against a proposal to invest in xAI. The number of votes against the idea and abstentions outnumbered those in favor.
Last year, investors overwhelmingly voted to award Musk, the world's richest man, a record-breaking pay package that could be worth up to $1 trillion.
To receive that payment, he must significantly increase the company's market value over the next 10 years.
The company will also have to significantly increase its spending, which is projected to reach $20 billion.
On a call with analysts, Musk said, "It's going to be a very big [capital expenditure] next year. We're investing heavily for a great future." Tesla shares rose nearly 2% in extended trading.
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This comes after Musk's foray into politics, including a high-profile role in cost-cutting efforts within the administration of US President Donald Trump.
His political activities have alienated some segments of Tesla's customer base, leading to protests at Tesla dealerships around the world.
This shift away from electric vehicles also coincides with Trump's cancellation of some US government subsidies for non-fossil fuel cars. Tesla, once one of the world's most profitable car companies, is now rapidly expanding into the robotic taxi business. Analysts say the company's move into new businesses comes at a time when it is struggling with its older electric vehicle lineup.
"The Model S and Model X have been low-volume vehicles for Tesla for some time," said Jessica Caldwell, head of insights at Edmunds.
"From a portfolio and focus perspective, it makes sense to discontinue them and focus on higher-volume products like the Model 3 and Model Y, and to bet on other business expansions," Caldwell added.
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