Tesla plans to scrap two models and invest $2 billion (€1.67 billion) in Elon Musk’s xAI, as the electric vehicle pioneer accelerates a charge into robotics and artificial intelligence following its first drop in annual revenue.
In the clearest sign yet of where Mr Musk is steering Tesla, the company said it would end production of the premium S and X models next quarter and convert its California factory into a manufacturing hub for its Optimus robots.
The announcements came as Tesla’s fourth-quarter results laid bare the damage to the carmaker from a year dominated by the Trump administration’s ending of electric vehicle (EV) tax incentives, Mr Musk’s polarising politics and the continued rise of low-cost Chinese rival BYD.
Fourth-quarter revenues fell 3 per cent to $24.9 billion, Tesla said after US markets closed on Wednesday. That pushed revenues for the year down 3 per cent to $94.8 billion, in a blow to a carmaker that over the past decade became a symbol for the arrival of the EV era.
READ MORE
Announcing the decision to ditch the premium S and X models, Mr Musk said: “That is slightly sad, but ... it’s part of our overall shift to an autonomous future.”
The world’s richest man has gambled Tesla’s future on self-driving Cybercabs and AI-enabled humanoid robots. The group has begun calling itself a “physical AI company”.
[ SpaceX weighs June IPO timed to planetary alignment and Elon Musk’s birthdayOpens in new window ]
Chief financial officer Vaibhav Taneja said Tesla would spend more than $20bn this year to build factory capacity and to invest in artificial intelligence (AI) infrastructure.
The spending plan came as Tesla reported that adjusted net income fell 16 per cent to $1.8 billion in the fourth quarter, beating Wall Street expectations. Net income, which includes stock-based compensation expenses and losses on digital assets Tesla owns, slumped 61 per cent to $840 million.
Shares in Tesla, which has a market value of $1.4 trillion, were up 2.5 per cent in premarket trading on Thursday.
[ Tesla to sell Optimus robots to public next year, Elon Musk saysOpens in new window ]
Musk has previously hailed a future for Tesla built on self-driving taxis and humanoid robots, saying in late 2024 that the group’s valuation could soar to as high as $5 trillion on the back of it. More recently, he has said the company’s valuation would reach $25tn as Tesla transforms into a robotics company.
The billionaire’s latest record-breaking $1 trillion pay package requires Musk to lift Tesla’s valuation to $8.5 trillion and sell millions of robots and autonomous-driving subscriptions.
On Wednesday, Tesla for the first time disclosed the number of its full self-driving subscriptions, which rose 38 per cent during the quarter to 1.1 million.
The company also said it planned to roll out its Cybercabs in seven more US cities by the summer following an initial launch in San Francisco and Austin, Texas. Musk has also claimed that the group would obtain regulatory approval for its “full self-driving” software in Europe and China next month.
Despite its name, full self-driving still requires humans to sit in the driver’s seat and pay full attention while Musk’s claims about its capabilities have drawn the scrutiny of US traffic safety regulators.
Tesla has pressed ahead with a $2 billion investment in Mr Musk’s xAI as part of its January funding round, despite lukewarm shareholder support for the move.
[ Michael O’Leary takes aim at ‘liar’ Donald Trump and ‘idiot’ Elon MuskOpens in new window ]
SpaceX, the billionaire’s rocket company, has already invested $2 billion in xAI as he seeks more financial support for the capital-intensive business.
The move to link Tesla more closely to Mr Musk’s AI group came after a nonbinding shareholder resolution in November pushed for such an investment.
While the measure received more votes in favour than against, the combined number of abstentions and “no” votes showed a majority of shareholders were not behind the move.
Tesla’s general counsel said at the time that a high number of abstentions meant the company would have to examine the results before deciding what to do next.
The carmaker’s fourth-quarter results underlined its struggle in Europe, where the sales drop-off has been even more stark with new registrations falling 21 per cent. Tesla’s business in the region has come under pressure from an influx of new EV offerings from both Chinese and western rivals.
Income from selling regulatory credits to rivals that build more polluting vehicles fell 22 per cent year on year in the quarter to $542 million. Last year, the US government eliminated fines for non-compliance with car emissions standards, effectively neutering the trading schemes.
Tesla also said its long-delayed Roadster sports car would be launched in April. – Copyright The Financial Times Limited 2026
