Tesla Reports Revenue Decline, Shifts Focus to Robots and AI

First Revenue Decline and Strategic Shift

Tesla announced its first-ever annual revenue decline in 2025. The electric vehicle maker reported a 3% drop in total revenues, while its profit for the last three months of the year fell by 61%. This announcement coincides with a period where the company is shifting its focus towards artificial intelligence and robotics.

Model S and X Production Ends, Making Way for Optimus Robots

The company has decided to halt production of its Model S and Model X vehicles. The California factory where these models were produced will now host the production of Tesla's humanoid robot line, the Optimus robots. Analysts note that the Model S and X have long been low-volume vehicles and that this decision makes sense from a portfolio and focus perspective.

AI Investment and Shareholder Vote

Tesla also announced it will invest $2 billion in Elon Musk's artificial intelligence venture, xAI. Musk stated they made this decision based on investor demand. However, this move comes after a shareholder vote on a proposal to invest in xAI, where votes against/abstentions outnumbered votes in favor. Last year, shareholders approved a record compensation package for Musk, potentially worth nearly $1 trillion, contingent on him significantly increasing the company's market value over the next decade.

Market Dynamics and Competition

The strategic shift follows Tesla losing its title as the world's largest electric vehicle maker to China's BYD in January. The company is also continuing to advance deeper into the robotaxi market. Significant developments in this space include Waymo's plans for London and Waabi's market entry through a partnership with Uber. Waabi had raised $1 billion in funding to enter this market.

Increased Spending and Political Context

Tesla is reportedly planning a significant capital expenditure increase for the coming year, estimated at around $20 billion. In a call with analysts, Elon Musk said, "We are making big investments for an epic future." This transformation coincides with Musk's entry into politics, including a high-profile cost-cutting role under US President Donald Trump's administration. Musk's political activities are observed to have alienated a portion of Tesla's customer base and led to protests at its dealerships worldwide.

The move away from its electric vehicle-focused roots also aligns with Trump's rollback of some US federal subsidies for non-fossil fuel vehicles. As technology companies shift their focus to different areas, budget-friendly surprises like the 3i G10+ robot vacuum continue to attract attention in the consumer market.