Tesla is taking another leap forward, shedding its title as an EV maker and transforming into a full-fledged physical AI company.
The theme of Wednesday’s fourth-quarter earnings call focused on how Tesla is investing in its future as an AI and robotics company — something CEO Elon Musk has been touting for some time.
That bet included Musk’s big investments in xAI, updates on his humanoid robot Optimus, and a new push for in-house chip manufacturing. Musk predicted Tesla’s future would require $20 billion in investments, far less than the company’s reported $8.5 billion in capital expenditures for fiscal 2025.
Meanwhile, Tesla’s auto division took a backseat. Musk said the company would retire the Model S and Model X to make room for humanoid robot production. Additionally, Tesla’s energy and “services” revenues rose 25% and 18%, respectively, while auto revenues fell 11% year-over-year. This clearly shows that growth in the quarter was coming from everywhere outside of the company’s core EV business.
“We’ve updated Tesla’s mission in an incredibly fulfilling way. This is an attempt to send an optimistic message about the future,” Musk said during the call.
The company’s shares rose 1.7% after the market closed Wednesday night.
Here are the six biggest takeaways from the earnings call.
Tesla invests $2 billion in xAI
Tesla has made good on its promise to investors, announcing a $2 billion investment in xAI, the startup behind Grok. This is part of a larger $20 billion Series E funding round that began in January.
This investment is expected to further deepen the collaboration between the two companies. xAI, which is expanding its data center footprint, could provide computing power and other technology capabilities to further advance Tesla’s self-driving car and robotics plans.
Tesla Chief Financial Officer Vaibhav Taneja said on a conference call that the agreement with xAI was in the spirit of finding “efficient ways for others to help us.”
Musk kills Model S and Model X
In a surprise move, Musk announced that production of the Model S and Model X would be halted by next quarter, ending a chapter for the company’s premium SUVs and sedans.
This leaves the EV maker with four vehicles: the Cybertruck, the more popular Model 3 and Model Y, and the unreleased CyberCab.
The move will give Tesla more space to produce Optimus robots at its Fremont factory, the CEO said on a conference call.
The “long-term goal” is to produce 1 million units a year in the freed up space, Musk said.
The CEO added that the retirement of Model S and Model X is part of Tesla’s “overall transition to a self-driving future,” which includes the company’s ride-hailing service, Tesla Robotaxi, and the self-driving of personal vehicles with its advanced driver assistance system, Full Self-Driving.
Tesla will begin production of its CyberCab, a two-seat coupe, in April and plans to eventually integrate it into its robotaxi fleet.
Robotaxis gain even more expansion targets
Tesla has revealed the regions it plans to expand its robotaxi ride-hailing service to in the first half of 2026 (Dallas, Houston, Phoenix, Miami, Orlando, Tampa, and Las Vegas), but has not yet announced when it will remove in-vehicle safety monitors for regular passengers in Austin and the San Francisco Bay Area, where the service is currently available.
Musk said FSD, the technology Tesla has announced will make its personal vehicles fully autonomous, is already “100% unsupervised” and operating without a human inside the car. He said Tesla began offering a limited number of driverless rides in Austin this month, but the difference is that Tesla is “very cautious” about rolling out driverless rides to the public.
“In different cities, there are like intersections that are pretty weird, and there are a lot of people who make mistakes and cause accidents,” Musk said. “So we want to make sure that FSD can handle these unusual intersections.”
Musk wants to further research into chips
There haven’t been many progress reports on Tesla’s AI5 chip, but the CEO said he’s been spending part of his weekend working on it.
“If I were to spend my Saturday doing something, it would be something pretty important,” Musk said, adding that chip sourcing is “essential” to Tesla’s future and even brought up his ambitious idea of building an in-house chip manufacturing factory, the Tesla “TerraFab.”
Musk said he wanted to build a factory that would integrate “logic, memory and packaging” because otherwise Tesla would be “fundamentally limited by the supply chain.”
Optimus is still in the “research and development stage”
Musk said he plans to unveil the Optimus 3 robot within “a few months” but said he doesn’t expect it to hit the assembly line yet.
The CEO said Optimus does not contribute “in any material way” to Tesla’s manufacturing operations and that the humanoid robot is at the factory for training purposes only.
Fundamentals remained important in the fourth quarter
Although Mr. Musk talked a lot about Tesla’s future, the company’s fourth-quarter results still depended on specific businesses such as its energy division, which includes its utility-scale battery system MegaPack and home battery system Powerwall.
“On the energy side, we achieved a new record in terms of gross profit for the quarter, ending the year with approximately $12.8 billion in revenue,” said Tesla Chief Financial Officer Taneja.
Tesla also announced this month that it will convert FSD to a subscription-only model starting in February. Previously, customers had the option to purchase an FSD upfront for $8,000.
This move clearly shows that Tesla views FSD as a significant source of future revenue.
Automakers increasingly see software subscription services as an important source of recurring revenue with higher profit margins. General Motors revealed that its vehicle software has generated $2 billion in the past nine months.
Tesla did not respond to a request for comment.
