Tesla is executing a dramatic transformation from electric vehicle manufacturer to AI and robotics company, as revealed in its latest earnings report. CEO Elon Musk announced the company will discontinue its Model S and X electric vehicles, converting those production lines to manufacture the Optimus humanoid robot. This strategic shift comes as Tesla reported its first-ever annual revenue decline and a 46% drop in profits for 2024, with car sales revenue falling 11% year-over-year in the last quarter.
Tesla is doubling down on AI investments, agreeing to invest $2 billion in xAI, Musk’s artificial intelligence startup, while exploring potential AI collaborations. The company expects to spend over $20 billion this year on new production lines and AI compute infrastructure to support its transformation.
Despite declining vehicle sales for the second consecutive year, investors reacted positively, with Tesla shares rising 3% after hours. This reflects growing confidence in Tesla’s pivot toward autonomous vehicles, robotaxis, and AI-powered services rather than traditional car sales. Analysts now estimate that 75-90% of Tesla’s long-term valuation is based on robotics and autonomous vehicles, with traditional car sales accounting for less than 10%.
Tesla has aggressively restructured its Full Self-Driving (FSD) offerings, eliminating the $8,000 one-time purchase option and making it subscription-only at $99 per month. The company also removed its free basic Autopilot feature, replacing it with limited cruise control. These moves aim to drive FSD adoption and create recurring revenue streams, though currently only 12% of Tesla owners have purchased FSD, with just 30% opting for subscriptions.
The Cybercab robotaxi without steering wheel or pedals begins production in April, and Musk announced plans to expand robotaxi services to “somewhere between a quarter and half” of the US by year-end. Tesla’s Austin robotaxi service, launched in June, recently began offering rides without safety drivers, though it currently operates only about 50 vehicles. Analysts don’t expect meaningful robotaxi revenue until 2027, but believe it will transform Tesla into a high-margin services business similar to Uber, dramatically improving economics compared to capital-intensive car manufacturing.
Key Quotes
The vast majority of miles traveled will be autonomous in the future. I’m just guessing, but probably less than 5% of miles driven will be where somebody’s actually driving the car themselves in the future, maybe as low as 1%.
Elon Musk made this bold prediction during the analyst Q&A, articulating his vision for why Tesla is abandoning traditional vehicle models. This statement justifies the company’s dramatic pivot away from car manufacturing toward AI-powered autonomous systems.
They’re definitely moving away from an automotive-oriented company to a tech-oriented company. This is a company that’s looking to get away from vehicle sales as the focus of their revenue.
Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, explained Tesla’s strategic transformation before the earnings announcement. His analysis captures the fundamental business model shift that Tesla is executing.
It dramatically transforms the current auto business, which is a capital-intensive, low-margin business, into a high-margin, much higher revenue business. The market is bigger and the economics are far better.
Tom Narayan, lead equity analyst at RBC Capital Markets, explained why robotaxis represent such a compelling opportunity for Tesla. He attributes nearly 75% of his long-term Tesla valuation to robotics and autonomous vehicles, demonstrating investor confidence in the AI-driven business model.
The physical products themselves, the cars and the automotive side, are all legacy products. We’re going to see them going forward to autonomous software, autonomous hardware, things that will move them into the next generation.
Sam Fiorani characterized Tesla’s traditional vehicle business as obsolete, emphasizing that the company views its entire automotive heritage as belonging to the past. This stark assessment underscores the completeness of Tesla’s transformation toward AI and robotics.
Our Take
Tesla’s pivot represents a high-stakes bet that AI and robotics will mature faster than its core automotive business declines. The timing is precarious—abandoning profitable vehicle lines while robotaxi revenue won’t materialize until 2027 creates a dangerous gap. However, Musk may have no choice: Chinese EV dominance and the end of regulatory credits are eroding Tesla’s automotive advantages.
The mandatory FSD subscriptions reveal Tesla’s desperation to monetize AI capabilities before competitors catch up. With only 12% adoption despite years of availability, forcing subscriptions risks alienating customers. Yet this aggressive monetization is necessary to justify Tesla’s $1.35 trillion valuation, which assumes AI breakthroughs that haven’t fully materialized.
Most critically, this transformation tests whether AI hype can sustain a company through years of declining core revenue. If robotaxis and Optimus deliver, Tesla becomes the template for AI-driven disruption. If they stumble, it becomes a cautionary tale about abandoning profitable businesses for speculative AI futures.
Why This Matters
This represents one of the most significant pivots in automotive and AI industry history, as the world’s most valuable carmaker abandons traditional vehicle production for artificial intelligence and robotics. Tesla’s transformation signals a broader industry shift where autonomous AI systems may render human-driven vehicles obsolete, with Musk predicting less than 5% of future miles will involve human drivers.
The implications extend far beyond Tesla. If successful, this pivot validates the trillion-dollar potential of AI-powered robotics and autonomous services, potentially triggering similar transformations across the automotive sector. For workers, it accelerates concerns about AI-driven job displacement in transportation and manufacturing. For investors, it demonstrates how AI valuations now dwarf traditional business models, with analysts attributing 75-90% of Tesla’s worth to未来 AI capabilities rather than current products.
The $20 billion investment in AI infrastructure and the $2 billion xAI partnership underscore the massive capital requirements for competing in advanced AI, potentially widening the gap between tech giants and traditional manufacturers. Tesla’s aggressive monetization of FSD through mandatory subscriptions also previews how AI features will shift from products to services, fundamentally changing consumer relationships with technology.
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Source: https://www.businessinsider.com/tesla-tech-company-elon-musk-ai-robotics-optimus-robotaxi-2026-1