Tesla To Invest USD 2 Billion in xAI and Discontinue Model S and X To Pivot Toward Autonomous Future

Austin, January 29: Tesla has announced a strategic shift in its business model, pledging a USD 2 billion investment in Elon Musk’s artificial intelligence venture, xAI. During its fourth-quarter earnings call for 2025, the company also confirmed the impending discontinuation of its flagship Model S sedan and Model X SUV to reallocate factory space for the production of humanoid robots and autonomous vehicles.

The investment in xAI aligns with CEO Elon Musk’s vision to transition Tesla from a traditional electric vehicle manufacturer into a comprehensive AI and robotics enterprise. This move comes as the company reported an annual revenue of approximately USD 94.83 billion for 2025, marking its first annual decline as global EV competition intensifies. Elon Musk Calls Vinod Khosla ‘Retard’ and ‘Pompous A**hole’ After Both Share Spat About ‘WAGA’ Agenda and White Population Decline.

Tesla Cybercab Production and Capital Expenditure

Tesla reiterated that production for its purpose-built "Cybercab" robotaxi remains on track to begin in April 2026. However, Chief Financial Officer Vaibhav Taneja warned that capital expenditures will more than double to over USD 20 billion this year to support these ambitious projects. This is a significant increase from the USD 8.5 billion spent in 2025, reflecting the heavy costs of building new production lines for the Cybercab, the Tesla Semi, and the Optimus humanoid robot.

While Musk described the initial production ramp-up for the Cybercab and Optimus as "agonisingly slow," he remains confident in the long-term volume. The Cybercab is designed without a steering wheel or pedals, a move that still faces considerable regulatory hurdles in the United States before broad unsupervised deployment can be realised.

Tesla Discontinues Model S and Model X

In a surprising move, Tesla will stop production of its pioneering Model S and Model X vehicles by the end of the second quarter of 2026. Musk stated it was time for an "honourable discharge" for the models that established Tesla’s brand, as the company now prioritises autonomy. The Fremont factory lines currently used for these premium EVs will be converted to manufacture the Optimus robot, with a long-term goal of producing one million units.

The decision follows a period of dwindling sales for the luxury models, which now account for only a small fraction of Tesla’s total revenue. Existing inventory will continue to be sold until stocks are depleted, but no new orders will be fulfilled once production ceases.

Tesla Q4 Earnings and Energy Growth

Despite a 61 per cent drop in net income to USD 840 million for the December quarter, Tesla’s adjusted earnings per share of 50 cents exceeded Wall Street estimates. The company’s automotive gross margin, excluding regulatory credits, rose to 17.9 per cent, outperforming analyst expectations. This improvement was partly attributed to cost-cutting measures and the continued popularity of lower-priced trims. Elon Musk Says He Has Not Sold Tesla Stock in 3 Years, Bought USD 1 Billion Worth of Shares Last Year To Bolster Investor Confidence.

A significant highlight of the report was the energy generation and storage segment, which saw revenue rise 25.5 per cent to a record USD 3.84 billion. Demand for grid-scale batteries, such as the Megapack, continues to grow as global energy networks transition to renewable power. Tesla expects this segment to remain a crucial driver of profitability as it navigates the transition toward a robot-led future.

(The above story first appeared on LatestLY on Jan 29, 2026 12:00 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).