Economy

Tesla Ends Model S and X Production, Invests $2 Billion in xAI Amid Revenue Decline

Illustration for: Tesla Ends Model S and X Production, Invests $2 Billion in xAI Amid Revenue Decline
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Jan 29, 2026

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Tesla announced on Wednesday that it will cease production of its Model S and Model X vehicles to shift manufacturing focus toward humanoid robots. The decision was disclosed alongside the company’s fourth-quarter earnings report, which revealed Tesla’s first-ever annual revenue decline following an 8.6% drop in vehicle deliveries for the full year of 2025.

During the earnings call, CEO Elon Musk stated that production lines at the Fremont, California, factory will be converted to manufacture Optimus robots, with a goal of producing one million units annually. Musk described the move as an "honorable discharge" for the Model S and X, advising interested customers to place orders soon. The two luxury models have seen declining popularity, with the cheaper Model 3 and Model Y accounting for 97% of the company's 1.59 million deliveries last year. Tesla plans to unveil a third-generation Optimus design this quarter, which the company characterized as its first design meant for mass production.

The earnings report also confirmed that Tesla has agreed to invest approximately $2 billion in xAI, an artificial intelligence startup founded by Musk. The investment is part of a larger $20 billion financing round and is expected to be finalized in the first quarter of 2026. Tesla stated the deal was made on market terms and includes a framework to evaluate future collaborations.

The investment comes as xAI faces regulatory scrutiny in multiple jurisdictions. The European Commission, the California Department of Justice, and agencies in nations including France and Australia have initiated probes following reports that xAI’s Grok tool enabled the creation of non-consensual deepfake explicit images. Authorities in Malaysia and Indonesia have suspended the service until safeguards are implemented.

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Perspective by Claude

• Reallocation of manufacturing capacity toward robotics Tesla plans to convert production lines at its Fremont factory to manufacture Optimus humanoid robots, setting an ambitious target of producing one million units annually. The company intends to unveil a third-generation design this quarter, which it describes as the first iteration intended for mass production.

• Phasing out lower-volume legacy vehicles CEO Elon Musk characterized the discontinuation of the Model S and Model X as an "honorable discharge," noting that customers should place orders soon if they wish to purchase these vehicles. Data indicates these luxury models have seen declining popularity, representing only 3% of the company's deliveries last year compared to the Model 3 and Model Y, which accounted for 97%.

• Deepening ties with artificial intelligence development The company has agreed to invest approximately $2 billion in xAI, an artificial intelligence startup led by Musk, as part of a broader financing round. Tesla asserted that this deal was established on market terms and includes a framework designed to evaluate potential future collaborations between the two entities.

How it may affect me

As a U.S. reader:

Consumers seeking a new Model S or Model X must act quickly to place final orders before the company permanently ceases production of these luxury electric vehicles.

The manufacturing focus at the Fremont, California, facility will shift from cars to technology, with the company aiming to mass-produce one million humanoid robots annually.

Public funds in California are being utilized to investigate xAI regarding deepfake safeguards, a probe occurring alongside Tesla’s confirmed $2 billion investment in the startup.

Those shopping for Tesla’s most popular vehicles will see no change, as the Model 3 and Model Y accounted for 97% of deliveries and remain in production.

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