Tesla Scales Back Vehicle Lineup As Focus Shifts To AI And Robotics
Tesla has reported its first annual drop in revenue as the electric vehicle maker pivots towards artificial intelligence and robotics, marking a significant change in strategy for the company.
The firm, led by billionaire entrepreneur Elon Musk, said total revenue fell by 3% in 2025, while profits plunged by 61% in the final quarter of the year. Against this backdrop, Tesla announced it will discontinue production of its Model S and Model X vehicles.
The California facility previously used to manufacture the two models will now be repurposed to produce Tesla’s humanoid robots, known as Optimus, signalling a stronger push into automation and robotics.
The announcement comes amid mounting pressure on Tesla’s core EV business. Earlier this year, Chinese automaker BYD overtook Tesla as the world’s largest electric vehicle producer, while Musk’s growing involvement in politics in the US and internationally has sparked controversy.
Tesla also disclosed a $2bn (£1.45bn) investment in xAI, Musk’s artificial intelligence startup. Musk said the decision was driven largely by shareholder interest, noting that many investors had encouraged Tesla to back the AI venture.
However, the move follows a shareholder vote in which opposition and abstentions outweighed support for investing in xAI. Despite this, Musk has continued to secure strong backing from investors. Last year, shareholders approved a landmark pay package for the Tesla CEO that could approach $1tn, contingent on a dramatic increase in the company’s market value over the next decade.
Tesla is also preparing to significantly increase spending, with capital expenditure expected to rise by about $20bn. Musk told analysts the company is laying the groundwork for what he described as a transformative future.
Shares in Tesla rose by around 2% in after-hours trading following the announcements.
The strategic shift comes as Musk’s political activities, including a prominent role in the administration of US President Donald Trump, have drawn criticism and triggered protests at Tesla dealerships in several countries. At the same time, policy changes in the US, including the rollback of some incentives for electric vehicles, have added further pressure to the EV market.
While Tesla continues to invest in areas such as robotaxis, analysts say parts of its vehicle lineup have struggled to keep pace with competitors.
“The Model S and Model X have been low-volume models for some time,” said Jessica Caldwell, Head of Insights at Edmunds. “From a product and strategy perspective, it makes sense for Tesla to streamline its range and focus on higher-demand vehicles like the Model 3 and Model Y, while expanding into new areas.”
Once among the most profitable carmakers globally, Tesla’s latest moves underscore a broader effort to redefine its future beyond electric vehicles.
