Tesla has reported a fall in its annual revenue for the first time, marking a significant turning point for the electric vehicle maker as it pivots away from its traditional EV business towards artificial intelligence and robotics. The company, led by billionaire Elon Musk, said its total revenues declined by 3% in 2025, while profits dropped sharply by 61% in the final quarter of the year, underscoring the financial pressures accompanying its strategic shift.
Alongside the financial results, Tesla announced that it will discontinue production of its Model S and Model X vehicles. The California manufacturing facility that previously produced these models will now be repurposed to manufacture Tesla’s humanoid robots, known as Optimus. The move reflects the company’s growing emphasis on future technologies beyond electric cars, even as competition in the EV market intensifies globally.
The announcement comes at a time when Tesla’s dominance in the electric vehicle space is being challenged. In January, Chinese automaker BYD overtook Tesla to become the world’s largest EV manufacturer by sales. Analysts have also pointed to Tesla’s ageing vehicle lineup as a concern, particularly as rivals introduce newer models at competitive prices. The decision to end the Model S and X, which have seen relatively low sales volumes in recent years, is being viewed as part of an effort to streamline the company’s portfolio and focus on higher-volume models such as the Model 3 and Model Y.
Tesla also disclosed a $2 billion investment in xAI, an artificial intelligence startup founded by Musk. Speaking to analysts, Musk said the decision was driven largely by investor sentiment, claiming shareholders had encouraged Tesla to participate in xAI’s latest funding round. However, this move appears to contradict the outcome of a recent shareholder vote on the proposal, in which abstentions and votes against outweighed those in favour.
Despite mixed investor views on the xAI investment, Musk remains firmly backed when it comes to his own compensation. Last year, Tesla shareholders approved a record-breaking pay package for Musk that could eventually be worth close to $1 trillion, provided he succeeds in dramatically increasing the company’s market value over the next decade.
Tesla also signalled a major increase in spending, with capital expenditure expected to rise by around $20 billion. Musk described the coming year as one of heavy investment, telling analysts that the company was laying the groundwork for what he called an “epic future.” Following the earnings announcement, Tesla shares rose about 2% in extended trading.
The company’s strategic transition has not been without controversy. Musk’s growing involvement in politics, including a prominent cost-cutting role in the administration of US President Donald Trump, has sparked criticism and alienated sections of Tesla’s customer base. Protests have been reported at Tesla dealerships in several countries. The shift away from electric vehicles also coincides with changes in US policy, with the Trump administration rolling back some subsidies for non-fossil fuel cars, potentially dampening demand.
As Tesla pushes further into areas such as humanoid robots and robotaxi technology, industry experts say the company is entering a more uncertain phase. While the move away from low-volume models may make commercial sense, the challenge will be whether Tesla can successfully translate its ambitions in AI and robotics into sustainable growth at a time when its core EV business is facing mounting competition.
