Tesla has reported its first annual sales decline as the electric car maker accelerates a strategic shift away from legacy vehicle models and toward artificial intelligence and robotics.
The company said total revenue fell 3 percent in 2025, marking the first year-on-year decline in its history, while profit plunged 61 percent in the final three months of the year. Tesla also confirmed that it will end production of its Model S and Model X, two of its longest-running vehicles.
Production capacity at the California factory previously used for these models will be redirected to Tesla’s humanoid robot program, known as Optimus, underscoring the company’s push into robotics as a future growth engine.
The announcement comes at a time when competition in the electric vehicle market is heating up. In January, China’s BYD overtook Tesla as the world’s largest electric vehicle maker by sales, while analysts warned that Tesla’s vehicle lineup was starting to look outdated.
Tesla also announced a $2 billion (£1.45 billion) investment in xAI, the AI company founded by CEO Elon Musk. Musk said the move reflects pressure from shareholders to support the company.
“A lot of investors have asked us to do this,” he said on an earnings call. “They say we should invest in xAI, so we’re doing what shareholders asked us to do.”
The decision follows a recent shareholder vote on whether Tesla should invest in xAI, in which abstentions and dissenting votes outnumbered yes votes. It’s also less than a year after shareholders overwhelmingly approved a record-breaking pay package for Musk that could potentially be worth nearly $1 trillion if ambitious market value targets are met over the next decade.
Tesla said capital spending was expected to rise sharply, and Musk warned of around $20 billion in investments. “There will be very large capital expenditures next year,” he said. “We are making major investments for an epic future.”
Shares of Tesla rose about 2 percent in extended trading following the results.
The company’s strategic realignment coincided with growing controversy over Musk’s political activities, including his prominent cost-cutting role in Donald Trump’s administration. His involvement has alienated parts of Tesla’s customer base and led to protests outside dealerships in several countries.
The move away from core electric vehicle models also comes as the U.S. government rolls back subsidies for fossil fuel-free vehicles, further increasing pressure on Tesla’s automotive business. At the same time, the company is pushing deeper into robotaxis and autonomous technology, betting that AI-powered services will support the next phase of growth.
Jessica Caldwell, head of insights at Edmunds, said the decision to drop the Model S and X was not unexpected.
“They have been low-volume vehicles for some time,” she said. “From a portfolio and focus standpoint, it makes sense to focus on higher volume products like the Model 3 and Model Y while pursuing new growth opportunities.”
The results mark a turning point for Tesla, once one of the world’s most profitable automakers, as the company seeks to reinvent itself as a broader AI and robotics company amid slowing electric vehicle growth and increasing global competition.
