Tesla has announced a significant strategic pivot, discontinuing production of two of its electric vehicle models as the company shifts its focus towards robotics and artificial intelligence. This move comes in the wake of Tesla reporting its first-ever annual revenue decline, signalling a major transformation in its business operations.
End of an Era for Model S and X
Chief Executive Elon Musk confirmed to analysts during a recent conference call that Tesla will cease selling its older Model S and Model X vehicles. The factory space previously dedicated to these models will be repurposed for the manufacturing of Optimus robots, marking a tangible step in Tesla's transition away from its traditional automotive roots.
Substantial Investment in AI and Robotics
To support this new direction, Tesla revealed plans to more than double its investment this year to a staggering $20 billion (£14.5 billion). A significant portion of this sum, approximately $2 billion, will be allocated to Musk's artificial intelligence division, xAI. This substantial financial commitment underscores the company's determination to establish itself as a leader in the robotics and AI sectors.
This increased spending aims to fulfil a series of promises made by Musk regarding Tesla's evolution towards self-driving vehicles and advanced robotics. However, previous targets in these areas have consistently fallen short of expectations, placing considerable pressure on the company to deliver tangible results.
Challenges in the EV Market
Tesla's strategic shift occurs against a backdrop of intensifying competition in the electric vehicle market. Chinese manufacturer BYD surpassed Tesla last year to become the world's largest EV maker, highlighting the increasingly crowded nature of the sector. Tesla's revenues and profits suffered throughout 2025, with core EV sales impacted by several factors.
The sales that Tesla did achieve were largely facilitated by substantial discounts. This pricing strategy reflected not only political boycotts against Musk due to his involvement with the Trump administration but also the competitive pricing of vehicles produced by Tesla's rivals. Furthermore, the termination of US tax incentives for electric vehicles under the Trump administration added to the company's challenges.
Regulatory and Production Hurdles
Musk's ambitious plans for Cybercabs, or robotaxis, have encountered significant obstacles, including capacity limitations and regulatory approvals. Additionally, Musk has previously cautioned that a global shortage of memory chips, driven by the widespread rush for AI technology, could potentially hinder production as it scales up later this year.
Investor Response and Future Prospects
Despite these challenges, Tesla shares experienced a 2% increase in after-hours trading, building upon cautious gains from the previous year. These gains have been largely attributed to the AI-driven turnaround strategies promised by Musk. However, the CEO faces immense pressure to deliver on his vision, particularly concerning a share price-based incentive plan that could be worth up to $1 trillion over a decade.
Some investors express concerns that Musk's focus may be spread too thinly across his various ventures, especially with plans to take his rocket company, SpaceX, public, potentially as early as June. The success of Tesla's pivot towards robotics and AI will be crucial in determining the company's future trajectory and its ability to regain momentum in an evolving technological landscape.
