Elon Musk opened Tesla’s latest earnings call with a line that landed like both an elegy and a bet: the company will stop producing the Model S and Model X and retool the Fremont, California, assembly lines to make Optimus humanoid robots.
Those two cars — the high-end sedan that helped prove electric vehicles could be desirable (Model S, 2012) and the falcon-wing–doored SUV that followed (Model X, 2015) — will get what Musk called an “honorable discharge.” Production is expected to wind down next quarter, he said, while Fremont’s capacity will be transformed for the bot business.
The announcement, in plain terms
On the company’s fourth-quarter call Musk said Tesla will replace the S/X line in Fremont “with a 1 million unit per year line of Optimus.” He argued the move makes sense because Optimus requires an entirely new supply chain and manufacturing approach. The company also expects to increase headcount at Fremont rather than shrink it, he added.
It’s a dramatic pivot: Tesla’s luxury models are expensive (Tesla lists the Model S around the mid‑$90,000s and the Model X near $100,000) but their sales have dwindled. The company’s mass-market Models 3 and Y now account for the vast majority of deliveries — roughly 97% of a roughly 1.6 million vehicle year — leaving S and X to run at much lower volumes for years.
Why Tesla is betting on robots and AI
Musk has been explicit for a while: Tesla’s future, in his telling, isn’t just electric drivetrains but autonomy, in‑car AI, robotaxis and humanoid robots. The company is spending aggressively — management flagged more than $20 billion in capex this year — and he reiterated plans to push forward on in-house AI chips (AI5) and a possible TeraFab chip fab concept.
Those bets aren’t just philosophical. Tesla agreed to invest $2 billion into xAI and opened a framework for closer collaboration, signaling the company’s push to stitch together car software, robot control systems and broader AI workstreams. At the same time, Tesla is trying to scale energy-storage hardware (Megapack) to support growing compute and grid needs — an angle that ties into broader industry conversations about AI-power demands and new forms of data-center infrastructure, like Google’s Project Suncatcher.
Optimus itself is being pitched as a mass-production product: Tesla says third‑generation Optimus is its first design meant for volume manufacturing, with a goal for production before the end of 2026. Musk also described production as a “stretched out S‑curve,” admitting the ramp will take time because the supply chain is new.
The financial and competitive context
Tesla reported a drop in full-year revenue and its first annual sales decline on record. Global EV competition has intensified: BYD and other players surged, and Tesla’s deliveries slid in 2025. Analysts point to three linked risks: weakening core auto fundamentals, the long timelines for robotaxi/Optimus commercialization, and supply‑chain chokepoints — most pressingly, chips.
Wall Street reaction was mixed. Some analysts praised margin resilience and the potential upside from AI and robotics; others warned the company needs a credible timeline for commercialization before investors can confidently price that future in. The questions aren’t just technical — they’re economic: can robotaxis and humanoid robots generate returns that compensate for a narrower core car business?
What this means for owners, workers and competitors
If you own an S or X, Tesla says it will continue supporting those cars for the foreseeable future. For Fremont workers, Musk promised headcount will grow rather than shrink as the plant retools. For rivals, the move signals Tesla is conceding the low‑volume luxury segment while doubling down where management sees hyper‑scaling potential.
Practical milestones to watch: the unveiling of Optimus 3 (promised this quarter), the training and early production runs Musk said will begin in Texas, and progress on Tesla’s AI5 chip and any steps toward a TeraFab. The company also remains committed to launching robotaxi fleets in more cities this year and to ramping Cybertruck, Cybercab and Semi production in the coming months.
The gamble
There’s an irony in killing two of the vehicles that built Tesla’s reputation to chase the next frontier. The Model S helped make Tesla a serious automaker; now the company is treating that success as a platform to vault into robotics and autonomy. It’s a high‑stakes pivot: if Optimus and robotaxi economics scale as Musk hopes, Tesla could remap entire markets. If they don’t, the company risks leaving value on the table while it funds a very expensive experiment.
Either way, the S and X will leave the showroom floor as artifacts of the phase that built Tesla. The company’s next chapters — whether in fleets of self‑driving cars, humanoid helpers, energy storage for AI centers, or some mix of all three — are now the story investors and engineers are being judged on. And that story will be written in chips, software, factories and, yes, a lot of patience.
Related reading: Tesla’s energy ambitions intersect with new AI infrastructure debates in Google’s Project Suncatcher, and the broader AI arms race is reshaping how companies think about data and services, as explored in Gemini’s Deep Research integration with workspace tools.