Tesla Conference Call: The discontinued Model S/X will shift its focus to AI. The third-generation Optimus will be released this quarter. This year is a big year for capital expenditures.

# Source: Wall Street Insights

By Bao Yilong & Ye Zhen

Musk announced the permanent discontinuation of the flagship Model S and Model X, freeing up production capacity to build a million-unit annual production line for Optimus robots, and stated that China is the biggest competitor in the humanoid robot sector. In addition, Tesla invested $2 billion in xAI to deepen its AI layout, with capital expenditure set to exceed $20 billion in 2026, focusing on computing infrastructure and self-developed chips. The Robotaxi fleet has surpassed 500 vehicles and will expand rapidly.

Tesla is accelerating its shift away from being a traditional automaker, fully betting on autonomous driving and humanoid robot businesses.

Signals of a radical strategic transformation emerged from Tesla’s Q4 earnings call released after the market close on Wednesday, where Musk announced the permanent halt of production for its flagship Model S and Model X, and confirmed plans to invest $2 billion in xAI, an artificial intelligence company under his umbrella.

Musk said Tesla’s two earliest high-end models will cease production by the end of the next quarter, earning a "glorious retirement". The move is intended to free up production capacity at the Fremont factory in California to build a production line for the Optimus humanoid robot with an annual capacity of 1 million units. Musk bluntly stated that the company is moving toward a "future based on autonomous driving", and emphasized that now is the last chance to pre-order these discontinued models.

In addition to the major product line adjustment, Tesla further deepened its ties with xAI, another company owned by Musk. In addition to confirming the $2 billion investment, the two parties also reached a "framework agreement" to explore deeper cooperation. Tesla stated that this cooperation will help enhance its autonomous driving technology, in-vehicle entertainment experience, and R&D capabilities for manufacturing robots.

Meanwhile, the company disclosed that 2026 will be a "year of massive investment", with capital expenditure (Capex) expected to exceed $20 billion, mainly for the construction of computing infrastructure, battery supply chains and AI chips.

Although Q4 revenue reached $24.9 billion, slightly below the market expectation of $25.11 billion, adjusted earnings per share (EPS) stood at $0.50, beating the expected $0.45. The mixed results did not dampen investor confidence; boosted by the radical transformation plan and AI vision, Tesla’s stock price rose by about 3% at one point in after-hours trading.

## Farewell to Flagship Models, All Bets on Optimus – China Is the Top Competitor

The discontinuation of the Model S and Model X is one of the most symbolic moments in Tesla’s history. These two models once established Tesla’s position in the high-end electric vehicle market, but their contribution to sales has shrunk significantly in recent years amid intensifying global competition.

Data shows that the two models accounted for only 3% of Tesla’s total deliveries of 1.59 million units last year. Musk said that while this is a "sad" decision, it is necessary to make way for a more promising future.

Tesla’s humanoid robot Optimus will fill this production capacity gap.

The company disclosed in its earnings report that it plans to launch the third-generation Optimus in this quarter – the first version designed for mass production with a redesigned hand structure. Musk revealed that although Optimus has not yet undertaken substantive work in factories and is still in the R&D stage, he expects to unveil Optimus 3 in a few months and plans to start production by the end of 2026, with its supply chain already in place.

Musk regards China as the biggest competitor in the humanoid robot field, stating: "We do not see any other important competitors except China."

## Deepening AI Layout: Investing in xAI and Self-Developed Chips

To support its vision of transforming into a "physical AI company", Tesla is building a massive computing and data ecosystem. CFO Vaibhav Taneja pointed out that the framework agreement with xAI aims to find an "efficient way for all parties to help each other", and Musk emphasized that the $2 billion investment is in response to shareholders’ wishes. This investment is part of xAI’s recently completed multi-billion-dollar financing round, intended to accelerate the catch-up with competitors such as OpenAI.

In terms of computing hardware, Musk once again emphasized the "existential" significance of chip supply. He said that while chip supply will be relatively sufficient for the next three years, in the long run, Tesla must plan ahead to meet the demand for Optimus and autonomous driving.

He revealed that he devotes a lot of time every week to developing Tesla’s self-developed AI5 chip, adding that the chip design is quite mature, and the AI6 chip, which is expected to see a substantial performance leap, will follow within a year. In addition, Musk revisited the idea of building an internal chip manufacturing plant "TeraFab" to avoid potential geopolitical risks and supply chain bottlenecks.

## Timeline for Autonomous Driving and Robotaxi

On the highly watched autonomous taxi (Robotaxi) business, Tesla provided a more specific timeline and deployment plan. The company revealed that the current Robotaxi fleet has exceeded 500 vehicles, mainly distributed in Austin and the San Francisco Bay Area, and expects this number to double every month.

By the first half of 2026, Tesla plans to roll out the service in cities such as Dallas, Houston, Phoenix, Miami, Orlando, Tampa and Las Vegas. Musk predicted that by the end of this year, consumers will see Tesla’s driverless cars in dozens of major U.S. cities.

Regarding the dedicated autonomous driving model Cybercab, Musk said its initial production will start at the Texas factory in April this year, but he warned that production volume will be "extremely slow" in the initial stage. Meanwhile, the highly anticipated new-generation Roadster sports car is expected to be demonstrated in April and start production in the first half of this year.

For the Cybertruck, Musk hinted that the production line will be fully converted to automated production in the future, and a fully self-driving version of the pickup truck will eventually be launched.

## 2026 to Be a Pivotal Year for Capital Expenditure

Faced with high AI investment, Tesla is prepared to significantly increase spending. In addition to the expected capital expenditure of over $20 billion in 2026, the company’s CFO pointed out that the energy storage business is emerging as a new cash cow. In the fourth quarter, revenue from the energy business reached $3.8 billion, a year-on-year increase of 25%, with gross profit hitting a record $1.1 billion. As the pressure on power grids from AI data centers increases, Tesla expects sustained growth in demand for its Megapack energy storage systems, and will start production of the new-generation Megapack at the Houston factory in 2026.

Despite facing challenges of falling sales and intensified competition, Tesla clearly stated in its earnings report that 2025 is a crucial year for its transformation from a "hardware-centric business" to a "physical AI company".

Wall Street responded positively to the results. Thomas Monteiro, an analyst at Investing.com, pointed out that although the EPS beat was modest, it was a "high-quality beat", showing that the company’s profit margin has stabilized amid the pressure of a price war.

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