Tesla said it will discontinue production of its Model S sedan and Model X sport-utility vehicle, marking a significant contraction of its long-running premium lineup as the company shifts resources toward artificial intelligence, robotics, and autonomy.

The move was outlined alongside annual results showing the company’s first year-on-year revenue decline, with Tesla describing a strategy increasingly centered on its Optimus humanoid robot, self-driving development, and a planned robotaxi business.

The company also disclosed a two billion dollar investment in xAI, the artificial-intelligence venture controlled by chief executive Elon Musk.

The decision links Tesla’s industrial ambitions to a separate AI platform effort and arrives as investors weigh the benefits of shared AI infrastructure against concerns about capital allocation and potential conflicts when a public company funds a business led by the same executive.

Tesla said the Model S and Model X lines will end in the second quarter of 2026, and that production capacity at its Fremont, California facility will be repurposed for Optimus robot manufacturing.

The Model S launched in 2012 and the Model X in 2015, but sales have become a smaller slice of Tesla’s overall deliveries as the Model 3 and Model Y dominated volume.

In its latest reporting, Tesla said total 2025 revenue fell about three percent to roughly ninety-four point eight billion dollars.

The company also posted its lowest annual profit since the pandemic, with net income reported at about three point eight billion dollars for 2025, down sharply from the prior year.

Quarterly performance highlighted the strain behind the annual picture.

Tesla reported fourth-quarter net income of about eight hundred forty million dollars, down around sixty-one percent year on year, while adjusted profit was reported at about one point eight billion dollars; revenue for the quarter was reported around twenty-four point nine billion dollars, and adjusted earnings were about fifty cents per share.

Tesla attributed key parts of the automotive slowdown to weaker vehicle sales, with fourth-quarter deliveries down about sixteen percent from a year earlier, and automotive revenue reported down about eleven percent over 2025. In the company’s smaller “other models” category, which includes Model S, Model X, and Cybertruck, deliveries were reported at about fifty thousand eight hundred fifty units for 2025, down roughly forty percent.

Confirmed vs unclear: What is confirmed is Tesla’s stated plan to end Model S and Model X production in the second quarter of 2026 and its two billion dollar investment in xAI, alongside a three percent decline in 2025 revenue; / What’s still unclear is the precise timeline and regulatory pathway for broad robotaxi deployment and the scale at which Optimus will be produced once Fremont capacity is retooled.

The company said it expects to spend about twenty billion dollars in capital expenditures in 2026, more than doubling its recent run-rate, as it builds out factories and compute for robotics and autonomy.

Tesla also reported that subscriptions to its full self-driving software reached about one point one million users, a figure it presented as evidence that software revenue can grow even when vehicle sales soften.

Supporters of the strategy argue that dedicating resources to Optimus, autonomy, and AI creates a path to higher-margin revenue streams that are less dependent on annual vehicle delivery growth.

Skeptics counter that discontinuing legacy halo models while committing large sums to adjacent AI ventures increases execution risk, especially as the company faces intensifying electric-vehicle competition and scrutiny over autonomous-driving claims.

Tesla said it is pressing ahead with plans for a dedicated “Cybercab” robotaxi concept and additional U.S. city rollouts tied to autonomy, while maintaining that its long-term identity is shifting toward what Musk has described as a “physical AI” company.

The near-term test is whether higher spending on robotics, AI, and autonomy can offset weaker automotive revenue and restore profit momentum without introducing new governance or regulatory constraints.