Tesla has reported its first annual drop in revenue as the electric carmaker pivots toward artificial intelligence and robotics, marking a significant shift in strategy for the company.
The firm, led by billionaire Elon Musk, said total revenue declined by 3% in 2025. Profitability also took a sharp hit, with earnings falling 61% in the final quarter of the year.
Alongside the financial results, Tesla confirmed it will stop producing its Model S and Model X vehicles. The California factory previously used to manufacture those models will instead be repurposed to build Tesla’s humanoid robot, Optimus.
The announcement comes at a challenging moment for the company. Earlier this month, Chinese manufacturer BYD surpassed Tesla to become the world’s largest producer of electric vehicles. At the same time, Musk’s political activity in the US and internationally has drawn criticism.
Tesla also disclosed that it has committed $2bn (£1.45bn) to xAI, Musk’s artificial intelligence start-up. Musk said the decision was driven by investor pressure.
“Many shareholders told us we should invest in xAI,” he said. “So we’re essentially doing what they asked.”
However, the investment follows a shareholder vote in which more investors either opposed or abstained from approving Tesla’s participation in xAI’s latest funding round than those who supported it.
Last year, shareholders overwhelmingly approved an unprecedented compensation package for Musk that could eventually be worth close to $1tn, contingent on Tesla dramatically increasing its market valuation over the next decade.
The company is also preparing for a major increase in spending, with capital expenditures expected to rise by around $20bn.
“It’s going to be a very big capex year,” Musk told analysts. “We’re investing heavily in what we believe will be an epic future.”
Following the announcement, Tesla shares rose roughly 2% in after-hours trading.
The strategic shift follows Musk’s involvement in politics, including a prominent cost-cutting role within the administration of US President Donald Trump. His political stance has prompted protests at Tesla dealerships worldwide and alienated some customers.
The company’s move away from traditional EV production also comes as the Trump administration rolls back certain US subsidies for non-fossil fuel vehicles.
Once among the most profitable carmakers globally, Tesla has increasingly leaned into emerging ventures such as robotaxis. Analysts say the decision to discontinue the Model S and Model X reflects both changing priorities and slowing demand.
“These models have represented a relatively small share of Tesla’s sales for some time,” said Jessica Caldwell, head of insights at Edmunds. “From a product and strategy perspective, it makes sense to focus on higher-volume vehicles like the Model 3 and Model Y while placing bets on new areas of growth.”
thetechtrident.com 