Tesla conference call: Halting production of Model S/X to fully shift towards AI, releasing the third generation Optimus this quarter, and this year is a big capital expenditure year

Tesla is accelerating its departure from the identity of a traditional automaker, fully betting on autonomous driving and humanoid robot businesses.

The fourth-quarter earnings call released by Tesla on Wednesday revealed signals of an aggressive strategic transformation. Musk announced the permanent cessation of production for the flagship models Model S and Model X, and confirmed a plan to invest $2 billion in the artificial intelligence (AI) company xAI.

Musk stated that the first two high-end models launched by Tesla will end production by the end of the next quarter, receiving a "glorious retirement." This move aims to free up capacity at the Fremont factory in California to establish a production line for the humanoid robot Optimus with an annual capacity of 1 million units. Musk candidly mentioned that the company is moving towards a "future based on autonomous driving" and emphasized that now is the last chance to order these two limited-edition models.

In addition to the significant adjustment of its product line, Tesla further deepened its ties with Musk's other company, xAI. Besides confirming the $2 billion investment, the two parties also reached a "framework agreement" aimed at exploring deeper cooperation. Tesla stated that this collaboration will help enhance its autonomous driving technology, in-car entertainment experience, and research and development capabilities for manufacturing robots.

Meanwhile, the company disclosed that 2026 will be a "huge investment year," with capital expenditures (Capex) expected to exceed $20 billion, primarily for computing infrastructure, battery supply chains, and AI chip development.

Although fourth-quarter revenue was $24.9 billion, slightly below the market expectation of $25.11 billion, the adjusted earnings per share (EPS) was $0.50, better than the expected $0.45. This mixed performance did not dampen investor confidence; buoyed by the aggressive transformation plan and AI vision, Tesla's stock price rose about 3% in after-hours trading.

Farewell to flagship models, fully betting on Optimus, with China as the biggest competitor

The cessation of Model S and Model X production 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 in recent years, their sales contribution has significantly shrunk amid intensifying global competition.

Data shows that last year, these two models accounted for only 3% of Tesla's total delivery volume of 1.59 million units. Musk stated that although this is a "sad" decision, it is made to make way for a more promising future.

Filling this capacity gap will be Tesla's humanoid robot Optimus.

The company disclosed in its earnings report that it plans to release the third-generation Optimus this quarter, which is the first version designed for mass production with a redesigned hand structure. Musk revealed that although Optimus is currently not performing substantial work in the factory and is still in the research and development stage, he expects to unveil Optimus 3 within a few months and plans to start production by the end of 2026, with its supply chain already prepared.

Musk views China as the biggest competitor in the humanoid robot field , stating: "We do not see any other significant competitors besides China."

Deepening AI Layout: Investment in xAI and Self-Developed Chips

To support its vision of transforming into a "real AI company," Tesla is building a vast computing power and data ecosystem. CFO Vaibhav Taneja pointed out that the framework agreement with xAI aims to find "efficient ways for all parties to assist each other," while Musk emphasized that the $2 billion investment aligns with shareholder wishes. This investment is part of the recent $10 billion financing completed by xAI, aimed at accelerating the catch-up with competitors like OpenAI.

In terms of computing hardware, Musk reiterated the "survival" significance of chip supply. He stated that while chip supply will be relatively sufficient over the next three years, Tesla must prepare for the long term to meet the demands of Optimus and autonomous driving.

He revealed that he spends a significant amount of time each week developing Tesla's self-developed AI5 chip, and mentioned that the design of this chip is quite mature, with the AI6 chip, expected to significantly leap in performance, to follow within a year. Additionally, Musk revisited the idea of building an internal chip manufacturing plant, "TeraFab," to avoid potential geopolitical risks and supply chain bottlenecks.

Autonomous Driving and Robotaxi Timeline

Regarding the highly anticipated Robotaxi business, Tesla provided a more specific timeline and deployment plan. The company revealed that the current Robotaxi fleet has exceeded 500 vehicles, primarily distributed in Austin and the San Francisco Bay Area, and expects this number to double each month.

By the first half of 2026, Tesla plans to promote the service in cities such as Dallas, Houston, Phoenix, Miami, Orlando, Tampa, and Las Vegas. Musk predicts that by the end of this year, consumers will see Tesla's autonomous vehicles in dozens of major cities across the United States.

Regarding the dedicated autonomous driving model Cybercab, Musk stated that initial production will start this April at the Texas factory, but he warned that the initial output will be "extremely slow." Meanwhile, the highly anticipated next-generation Roadster is expected to be demonstrated in April, with production planned to begin in the first half of this year.

For the Cybertruck, Musk hinted that the production line will eventually be fully automated, leading to the launch of a fully autonomous version of the pickup truck.

2026 to Welcome a Year of Capital Expenditure

In the face of high AI investments, Tesla is prepared to significantly increase its expenditures. In addition to expecting capital expenditures to exceed $20 billion in 2026, the company's CFO pointed out that the energy storage business is becoming a new cash cow. In the fourth quarter, energy business revenue reached $3.8 billion, a 25% year-on-year increase, with gross profit reaching a record $1.1 billion. With the increasing pressure on the grid from AI data centers, Tesla expects the demand for its Megapack energy storage system to continue to grow, with the next-generation Megapack production starting at the Houston factory in 2026.

Despite facing challenges of declining sales and intensified competition, Tesla clearly stated in its financial report that 2025 is a key year for its transformation from a "hardware-centric business" to a "real AI company." Wall Street reacted positively to this, with Investing.com analyst Thomas Monteiro pointing out that although the earnings per share exceeded expectations by a small margin, it was a "high-quality surprise," indicating that the company's profit margins have shown signs of stabilization under the pressure of the price war