Tesla to discontinue Model S and X to focus on AI, robotics
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San Francisco: Tesla CEO Elon Musk announced on Wednesday that the company will discontinue production of its Model X SUV and Model S full-size sedan, signaling a major pivot from its electric car business toward AI and robotics.
“It’s time to basically bring the Model S and X programs to an end,” Musk said on the company’s investor call, adding that production of both models is expected to wind down next quarter. The Fremont, California factory, which currently produces the vehicles, will be repurposed to manufacture Tesla’s upcoming Optimus robot.
Tesla’s latest earnings report highlighted declining vehicle sales and revenue, reflecting a transition Musk described as moving “from a hardware-centric business to a physical AI company.” Despite reporting its first-ever year-over-year revenue decline of 3%, Tesla beat Wall Street expectations with fourth-quarter earnings per share of $0.50, above the anticipated $0.45, and revenue of $24.9 billion, surpassing analyst estimates of $24.79 billion.
The company’s total automotive revenue dropped 11% in 2025, and fourth-quarter vehicle deliveries fell 16% year-over-year, particularly impacted by weakening demand in Europe. Following the announcement, Tesla shares rose as much as 4% in after-hours trading before tapering gains.
As vehicle sales have slowed, Musk and Tesla have emphasised a shift toward AI-driven projects, including Optimus consumer robots and autonomous Robotaxis. While these technologies remain largely unproven and not yet commercially available, Musk has claimed they will drive unparalleled future growth. Optimus production is planned before the end of 2026, with public sales expected in 2027.
Musk has described Optimus as the “biggest product of all time” and suggested that autonomous vehicles and robots could lead to “a world where there is no poverty.” Tesla also announced a $2 billion investment into xAI, Musk’s artificial intelligence company.
Tesla’s CFO, Vaibhav Taneja, revealed that the company’s capital expenditure would total $20 billion, far exceeding analyst expectations. While the stock experienced volatility during Musk’s controversial government involvement last year, it rebounded to an all-time high in December amid continued enthusiasm for AI investments and Musk’s vision of building a “robot army.” Shareholders also recently approved a compensation package for Musk that could award him up to a trillion dollars if Tesla meets specific financial milestones.
However, some of Tesla’s previously hyped products have struggled. The Cybertruck, touted by Musk as “the best vehicle Tesla has ever made,” saw sales decline by 48% last year. Tesla also faces growing competition from other electric vehicle makers, particularly China’s BYD, which overtook Tesla as the world’s largest EV producer in 2025, with a 28% sales increase and more affordable options for consumers.
