During Tesla’s earnings call on Wednesday, CEO Elon Musk told analysts that the company plans to discontinue sales of the Model S sedan and Model X SUV.
Once central to Tesla’s early success, the two premium vehicles now contribute only a small portion of overall revenue. The move underscores Tesla’s accelerating shift away from traditional electric vehicles toward artificial intelligence and robotics, highlighted by a $2 billion investment in Musk’s AI startup xAI.
From EVs to robots: the Optimus pivot
William Blair analyst Jed Dorsheimer said the transition toward AI and robotics is becoming increasingly concrete. He described Tesla’s strategy as effectively “trading S and X for Optimus,” noting that the economics strongly favor the shift.
Factory space at Tesla’s Fremont facility currently used to produce the Model S and X will be repurposed to manufacture Optimus humanoid robots.
According to William Blair estimates, Tesla sold roughly 30,000 Model S and X vehicles in 2025, generating about $3 billion in revenue. By comparison, even reaching half of Musk’s stated goal of producing one million Optimus robots annually would translate to approximately $25 billion in revenue, assuming an average selling price of $50,000 per unit.
The decision to retire the S and X aligns with broader capital allocation trends at Tesla, as manufacturing capacity and investment are increasingly redirected toward AI-driven initiatives.
Optimus version 3 is expected to be unveiled later this year, with full-scale production targeted to begin in 2027.
Margins, xAI investment, and outlook
William Blair noted that Tesla’s fourth-quarter margins exceeded expectations, supported by stronger full self-driving software purchases and resilient regulatory credit revenue. However, the firm cautioned that rising capital expenditures are likely to pressure free cash flow going forward.
The previously undisclosed $2 billion investment in xAI, revealed during Tesla’s earnings presentation, was viewed positively by the firm. Dorsheimer said the deal could benefit Tesla shareholders due to the growing overlap between the two companies, particularly as xAI’s Grok model is already integrated into Tesla vehicles.
William Blair maintained a Market Perform rating on Tesla, arguing that the stock price already reflects optimism around robotics, autonomy, energy storage, and in-house chip development. Execution risks and increasing capital intensity remain key concerns.
Tesla shares were up 1.8% in premarket trading on Thursday.
