Tesla kills Model S and X, bets $20B on robots - Q4 revenue down 3%
Tesla announced during its Q4 2025 earnings call that it will end production of the Model S and Model X in Q2 2026, reallocating Fremont factory capacity to manufacture Optimus humanoid robots. The company targets 1 million robot units annually - a significant pivot from its original premium sedan line that launched in 2012.
The discontinued vehicles represent approximately 2% of Tesla's sales volume, making the move more symbolic than material. What matters: Tesla is doubling capital spending to $20 billion in 2026, entering negative cash flow as it shifts resources from automotive to robotics.
The numbers tell the story
Q4 2025 revenue fell 3% year-over-year to $24.9 billion. Full-year 2025 profits dropped 46% compared to 2024. Of Tesla's $94.8 billion in 2025 revenue, $69.5 billion came from vehicle sales and leases - the rest split between energy storage and services. As EV sales dipped, so did Tesla's balance sheet.
Musk has spent years positioning Tesla beyond automotive - acquiring SolarCity in 2016, pushing AI and robotics narratives. The earnings call signaled action: substantial capital allocation toward non-automotive businesses, though revenue from these remains a fraction of vehicle sales.
Execution questions remain
The Optimus supply chain is "completely different" from automotive production, according to Musk, who provided vague timelines on the robot production ramp. No replacement vehicles are planned for the S and X. Tesla will retain only the Model 3, Model Y, and Cybertruck.
The company is also investing $2 billion into Musk's xAI, with reports suggesting merger discussions between SpaceX, Tesla, and xAI may be underway.
For APAC markets: the timing matters. Tesla is announcing aggressive robotics investments while facing declining automotive revenue and offering steep financing incentives (0% APR for 72 months on Model Y Standard). The energy storage business showed positive gains, but the core question persists: can Tesla execute a successful pivot while its primary revenue stream contracts?
History suggests product transitions of this magnitude take longer than projected. We'll see.